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Private airlines seek $1 billion bailout, Jet suspends San Francisco, impact of UDF

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[Cross posted from my aviation blog]

The deepening economic crises are forcing the hands of the private airlines in India.

Manisha Singhal of the Business Standard reports that airlines have sought a bailout of almost $1 billion (Rs. 4,700 Crore) amidst losses expected to reach $2 billion this year. Take a cue from the recent $440 million (Rs. 2,000 Crore) bailout of NACIL, the national airline, airline chiefs recently made a presentation to the Prime Minister’s Office to this effect and government sources said some of their demands may be accepted.

What airlines want

  • Interest-free loan with a “bullet” (one-time) repayment after three years
  • ATF be put under ‘declared goods’ for uniform sales tax
  • Reduction or withdrawal of duty on spare parts for aircraft maintenance
  • Scrapping customs and central excise on ATF
  • 50% reduction in airport landing, route and terminal navigation charges for 24 months
  • Freeze on further increases in airport service charges

The concessions requested include an interest-free loan with a “bullet” (one-time) repayment after three years, putting aviation turbine fuel (ATF) in the “declared goods” category for sales tax relief and scrapping customs (5.15 per cent) and central excise (8.54 per cent) on the fuel.

The industry has also asked for a reduction or withdrawal of duty on spare parts for aircraft maintenance. Airlines have also asked for a 50 per cent reduction in airport landing, route and terminal navigation charges for 24 months for domestic operations and a freeze on increase in airport service charges, sources close to the development said.

While the civil aviation ministry hopes that its finance counterpart will soon accept the demand to bracket ATF in the declared goods category, to ensure uniformity and help the airlines save on fuel costs, it is unlikely demands to reduce airport charges, and route and navigation charges will be considered.

Airline companies have been unable to garner investor interest or raise money from institutions to fund their losses and expansion plans.

Private carriers like Naresh Goyal-promoted Jet Airways have commenced "re-organisation" of international operations. Today it annouced, effective January 13, 2009, it will discontinue its Mumbai - Shanghai - San Francisco route, and serve its SFO bound passengers on codeshares with United via London.

No sympathy
While, the airlines are hoping for some positive response from the government soon, they do not have much sympathy from either industry experts or the general public.

Many aviation experts say airlines are themselves to be blamed for the financial crisis. “Could they not see the writing on the wall that crude, as a commodity, will go up? They made their biggest mistake when they started competing with the Indian Railways,” said an aviation analyst who did not wish to be identified.

Just last week, the airlines appeared to be willing to add special fees in the ticket price to cover travel agents' commissions costs, earning them the ire of the travelling populace.

Impact on airports
Delhi International Airport Limited (DIAL), has joined the ranks of other airports in India, Bengaluru International Airport (BIAL), and GMR Hyderabad International Airport (GHIAL), to demand imposition of User Development Fees on passengers. Aviation experts are cautioning about the exaggerated negative impact of these fees, on the Indian aviation industry especially in these tough times. Airports are stuck between a rock and hard place, with no easy options available.

Related articles :

Fuel Populism killing Indian aviation

Air passengers to pay yet another fee


s_yajaman's picture

Bailouts have become fashionable

120 users have liked.

As the saying goes - "There are no atheists in foxholes and no libertarians in a recession".  Nice little list they've put up there.  Where do I get to put my own little list? 

A business cannot be run on a revenue free model.  If I were the government I would first ask them what steps they've taken to cut costs and improve their revenues before I step in to bail them out.

I think it was Richard Branson who said that the fastest way to become a millionaire is to start as a billionaire and to enter the airline industry!




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