The COVID-19 pandemic had a massive impact on the Indian aviation sector in 2020 and major airlines facing losses and challenging times laid off employees, sent them on leave without pay, or cut their salaries.
In order to make debt-laden Air India more attractive, the government changed the bidding parameter in October - bidders will now quote enterprise value instead of equity value.
The COVID-19 pandemic had a massive impact on the Indian aviation sector in 2020 and major airlines facing losses and challenging times laid off employees, sent them on leave without pay, or cut their salaries. The government also had to extend the deadline for submitting bids for Air India five times during the year. When the pandemic started spreading across the country, all scheduled international flights and domestic passenger flights were suspended from March 23 and March 25, respectively. Scheduled domestic flights were restarted in a limited manner from May 25.
The effect of this disruption can be gauged by the loss figures of India’s two largest airlines. IndiGo incurred net losses of Rs 2,884 crore and Rs 1,194 crore in Q1 and Q2 of this fiscal respectively. SpiceJet posted net losses of Rs 600 crore and Rs 112 crore in Q1 and Q2, respectively. The government, meanwhile, permitted special international passenger flights under Vande Bharat Mission since May and air bubble arrangements were formed with around 24 countries since July. However, scheduled international flights remain suspended in India.
“The revival of overseas travel is expected to be slower and more challenging than domestic. This will hurt Air India in particular as around 60 per cent of its revenue was earlier generated from international operations,” said aviation consultancy firm CAPA in October. It estimated that just 50-60 million passengers — 40-50 million domestic and less than 10 million international — would travel in 2020-21.
In 2019-20, approximately 205 million air passengers — 140 million domestic and 65 million international — travelled in India. CAPA India projected in October that the Indian aviation industry will lose a combined USD 6-6.5 billion in FY21, of which airlines will account for USD 4-4.5 billion. As a result, the government’s plan to sell Air India has been hit. After its unsuccessful attempt to sell the national carrier in 2018, the government in January restarted the divestment process but the pandemic forced it to extend the date for submission of expression of interest (EOI) five times.
The last date of EOI submission was December 14. The government has received multiple EOIs and it will announce the name of qualified bidders by January 5. In order to make debt-laden Air India more attractive, the government changed the bidding parameter in October – bidders will now quote enterprise value instead of equity value. This means that the bidder will be able to quote how much cash it would give and how much debt of the airline it would be able to carry. However, the government made it clear that minimum 15 per cent of the bid amount has to be in cash while the remaining would be the debt component.
Air India’s debt was Rs 58,255 crore as on March 31, 2019. Later in 2019, Rs 29,464 crore of this debt was transferred from Air India to a government-owned special purpose vehicle called Air India Assets Holding Company Limited (AIAHL). While Air India was unable to get a private owner in 2020, bankrupt airline Jet Airways was able to find one. A consortium of UAE-based businessman Murari Lal Jalan and London’s Kalrock Capital won the bid on October 17 to revive Jet Airways. It expects to start operating the airline by the summer of 2021.
The consortium said it is awaiting the NCLT and other regulatory approvals, including reinstatement of slots and bilateral traffic rights by the civil aviation ministry and Directorate General of Civil Aviation (DGCA). Slots — which is the time zone at which a flight can land at the airport — as well as bilateral traffic rights — the number of flights an airline can fly to another country’s city — are precious commodities in the aviation sector.
When Jet Airways went bankrupt in April 2019, its slots and rights were temporarily given to other Indian carriers by the government so that they can start new flights and fill the supply gap. Now, as other airlines have added planes and started flights considering these slots and rights will remain with them, it is not clear what decision the government will take on this matter in 2021. Meanwhile, the process to build the second international airport in Delhi moved ahead in 2020.
Ten months after winning the bid for greenfield international airport in Jewar, Zurich Airport International signed a concession agreement with the Uttar Pradesh government on October 7, 2020, to begin its construction. The Swiss developer has selected a four-company consortium to design its passenger terminal. The first phase of construction of the airport is likely to be completed by 2024. Air cargo traffic in India has been showing faster recovery in 2020 as compared to passenger traffic. This has given some respite to the aviation sector.
However, Anupama Arora, Vice President and Sector Head, ICRA Ratings, said, “In FY2021, total cargo volumes are expected to decline by 17-20% in FY2021 with meaningful recovery in cargo volumes expected only in FY2022.” To survive the pandemic-induced crisis, all airlines took cost cutting measures like firings or pay cuts in 2020. In April, GoAir sent the majority of its employees on leave without pay. Air India had in April cut the salaries of its employees by 10 per cent.
At the same time, SpiceJet and IndiGo cut the salaries of all employees by 10-30 per cent and 5-25 per cent, respectively. In July, IndiGo also laid off 10 per cent of its workforce. AirAsia India in April has cut the salaries of its senior employees by up to 20 per cent. Starting April, Vistara implemented a leave without pay program for its employees based on seniority.
Currently, the Indian airlines are operating domestic flights at around 80 per cent of their pre-COVID levels. The domestic services are expected to reach their pre-COVID levels by March 2021. With the anti-coronavirus vaccination likely to begin from 2021, the Indian aviation sector is hoping for a much better year as compared to 2020. However, after a new and more infectious coronavirus strain emerged in the UK recently, India announced on December 21 that all passenger flights connecting that country will be suspended from December 23 to December 31.