On the anvil: A comprehensive aviation policy

Written by Nistula Hebbar | Nistula Hebbar | Rishi Raj | New Delhi | Updated: Aug 15 2011, 08:53am hrs
Twenty years after India opened its skies to private airlines, a comprehensive policy for the civil aviation sector is on cards. Though the government routinely bails out state-owned Air India, which is in dire straits, it cant do the same for troubled private airlines that are bruised in a price war amid soaring fuel costs. With leading private airlines recording losses in the April-June quarter, the government feels it is time to take action.

Sources in the government said that while Air India is bogged down by financial woes, private airlines arent much better either. As its owner, the government can support Air India with cash, but is helpless if private airlines start collapsing.

Kingfisher Airlines ended last fiscal with a R1,027-crore loss. Even after a debt restructuring in which some lenders converted part of their loans into equity, the airline still owes over R6,000 crore to its lenders. It has delayed or defaulted on some payments to suppliers.

The government is planning to set up a panel of ministers or secretaries to find how a fund to support the aviation industry in times of crisis can be formed.

One of the options could be to levy some kind of a cess on passengers to create the fund, an official involved in the discussions told FE. It was realised by the government at the highest level that the country has no comprehensive civil aviation policy. All we have is an open skies policy, which barely caps foreign investment at 49%, the official added.

The rationale for a comprehensive policy and a financial cushion was felt due to the sector's increasing linkages with the country's economy. With air travel turning affordable, a large number of small and medium enterprises have structured their businesses in a model where travel is key. If the sector turns sick or air fares spike, these businesses would be grounded. Therefore, we cannot afford the sector to turn sick, officials said.

With airlines forced into price wars to retain market share even as jet fuel prices rise, more losses are expected. Fares have dropped nearly 18% in the last one year while the cost of aviation turbine fuel the main input cost has risen almost 40%. All private airlines posted losses in the first quarter (April-June) of the current financial year. While Kingfisher's net loss rose to R263.54 crore from R187.34 crore a year ago, Jet Airways, the countrys largest airline by passengers carried, reported a loss of R123.16 crore compared with a profit of R3.52 crore a year earlier. Budget airline SpiceJet posted a net loss of R71.96 crore against a profit of R55.21 crore a year earlier. The scenario is so grim that Kingfisher has turned to its ticketing agents to provide it the money generated from sales of tickets in advance.