The losses posted by Nacil, the entity formed by the merger of Air India with Indian, are not surprising in the least. The impact of rising aviation turbine fuel (ATF) prices, combined with an ageing fleet and much higher staff-to-plane ratio than other global carriers, was enough to presage a soaking of the P&L account in enough red ink to repaint the fleet all over again. Nacil?s losses for 2006-07? Over Rs 700 crore. This performance, to say nothing of the travails of stranded passengers at airports over the past week or so, brings into perspective the distance the new carrier would have to travel to get back into the black.
Underscoring the level of difficulty is the trouble the global aviation sector is going through. And to be fair, Nacil is not the only company in the domestic aviation sector to be bleeding. Private sector mergers, like those between Jet and Sahara and between Kingfisher and Air Deccan, will also take some time to achieve financial stability. Others are suffering, too. In fact, the domestic aviation sector?s cumulative losses are placed at around Rs 2,000 crore in 2007-08, a drop of 30% deeper into the red from the level of 2006-07. These losses are in spite of the 37% growth recorded by the sector, which puts its expansion thrice as fast as the rail sector that has won such adulation lately. Operationally, the airlines can claim to be doing the best they can, since it is well acknowledged that almost all the losses can be pinned on the increased burden of jet fuel bills, which account for about 40% of a typical airline?s operating costs. Roughly, every 2% hike in aviation fuel prices translates into a 1% increase in the cost of operations. In the last seven months, ATF prices shot up by over 10%, and seem poised to rise further. Nacil?s old fleet is less fuel-efficient than that of other carriers. Yet, blaming ATF prices for everything would be the lazy way out, even if the government, which is already paying for Nacil?s acquisition of 111 new planes, is only too happy to swab the carrier?s balance sheet clean and send it off with a pep talk. What it needs, instead, is a strong dose of aviation industry realism. If Nacil?s aircraft must stay airborne with their unique tailwing designs and proudly framed window jharokas, they must not miss the chance to make the most of a true turnaround opportunity. This means becoming truly competitive.
