Report on Delhi airport metro line flaws this week

week after the showcase Airport Express Line, India’s first metro rail network under public-private partnership, came to a grinding halt, the blame game between Reliance Infrastructure and Delhi Metro Rail Corporation (DMRC) continues.

The rift became public with the accusatory letter to the Union urban development minister from DMRC Managing Director Mangu Singh being leaked.

In it, he has reportedly accused the concessionaire, R-Infra, of allowing the situation to “worsen to such an extent that services were required to be suspended”.

STOPPED IN ITS TRACKS

Sep, 2007: First tender for line construction Jan 23, 2008: DMRC awards a 30-year PPP contract to Reliance Infra Aug 31, 2010: Original schedule of Airport Express line Oct 31, 2011: DMRC starts charging Rs 75 lakh a day as penalty from Reliance Infra Feb 23, 2011: Airport Express line begins operation July 8, 2012: Airport Express line operation suspended due to technical issues and safety concerns

The problem was with the construction of civil structures for the line and DMRC concedes this was its responsibility. However, it blames R-Infra for negligence in inspection.

“DMRC has never denied that construction and civil works was its responsibility, but R-Infra was not conducting regular inspections. They were doing it only when instructed by us and that, too, after we had written seven letters,” a DMRC official told Business Standard.

Defending itself, an R-Infra executive said, “In the letter, Mangu Singh has himself clearly accepted the flaws in the construction work. And, this was DMRC’s responsibility.”

The inspection work on bearings had to be done once a year, detailed inspection once in five years and replacement works once in 15 years, he noted, and they were complying with this schedule.

“DMRC is trying to deflect the focus of the public as they themselves faulted in construction,” he added.

Singh’s letter also said Reliance was trying to find an excuse to walk out for not being able to run the line in a profitable manner, wanting DMRC to either take over or financial restructure the project.

According to the contents of the leaked letter: “As I have already brought to your notice, Reliance, even prior to this issue of damage to the bearings, had represented to DMRC about the financial viability of the project and had in fact written to DMRC in this respect. They had expressed that either DMRC take over or restructure the entire project so that the financial burden on them is reduced. Meanwhile, they were able to find this issue of bearings and suspended the services.”

Responding, the R-Infra executive said, “DMRC is trying to shift the focus from safety to finances. We now suspect DMRC’s ability to ensure the supervision of the construction work and we have now started detailed inspection.”

The executive added a joint inspection team of Delhi Airport Metro Express Pvt Ltd, under the leadership of the Railway Board, had even found broken girders on the line, apart from bearings.

According to Sudhir Krishna, secretary to the ministry, “The joint committee under the railways has submitted an interim report and the final report is expected early next week. The report will just look into what needs to be rectified in the line and the reason for the defects.” Fixing the responsibility is outside the purview of this report and would be done in a different one, he said, adding that an end-to-end check of the line was desirable.

http://business-standard.com/india/news/reportdelhi-airport-metro-line-flaws-this-week/480548/

‘Air India has been harmed by its owner, the government’

Jitender Bhargava, a former executive director of Air India, blames the pilots for the beating the airline has taken because of their strikes. In this interview with Sridhar Kumaraswami, Mr Bhargava holds out little hope for the airline if the management structure stays the same.

Why have so many pilot strikes taken place in Air India lately? Has the management been insensitive to pilots’ concerns, forcing them into unreasonable behaviour? In the present case, what should the management do to appear reasonable in dealing with the pilots whose strike was declared illegal by the judiciary?

Though AI has been reeling under heavy losses, there have been three strikes by pilots in the last three years. No demand, no matter how genuine, can justify a strike in today’s situation.
Successive managements have also been insensitive to issues raised by the unions. This is because of a weak HR setup, lack of structured policies and their inconsistent application. The management has taken decisions under duress, appeasing one section of employees at the expense of others.

Should an airline tolerate overpaid pilots taking medical leave en masse on false pretexts and leave passengers — who pay through their nose — in the lurch? Some of the pilots’ demands, such as they should decide who should be allowed to train on the new generation aircraft, sound absurd.

While pilots should follow the industrial laws applicable for strikes, they earn salaries that appear huge to a common man but are largely in tune with global standards. If there is a case of overpaying the pilots, the management personnel who have signed such obnoxious agreements should be held guilty and accountable. As regards training of erstwhile Indian Airlines pilots on B787s, a decision ought to have been taken guided solely by the interests of the airline.

Should fat-salaried pilots be deemed to be workmen and allowed to go into trade union action?

Well-paid pilots certainly don’t deserve to be deemed “workmen”, but the description has legal validity. AI had for years drawn the attention of the authorities to this anomaly, but to no effect.

The root cause of much of the strife in AI seems to be the 2007 merger (of Indian Airlines and Air India) that led to the formation of a unified carrier. Can the two sets of employees think of themselves as one unit?

Merger is undoubtedly at the root of the current problems. Although HR issues were cited as problems before it was decided to merge, these were not addressed. The civil aviation ministry, which was to guide the merged entity in resolving parity and other issues, appointed the Justice Dharmadhikari Committee for the purpose only in May 2011, three years and eight months after the merger. Who is accountable for this lapse? Or, did the ministry wish to let the merged Air India embroil itself in problems?

Will the implementation of the Dharmadhikari report cure the HR-related ills of AI? Will wage cuts work?

It is unlikely that implementing Dharmadhikari committee’s recommendations will help address the HR concerns. AI may, in fact, witness the sinking of employees’ morale even further. This was an important committee but its report does not raise any expectations.

It was said that implementing the report will result in a saving of Rs 250 crore in the wage bill, but this seems unlikely as the cost neutrality principle has been violated in many of the recommendations. The report is neither just nor sound from the point of view of managing the airline productively and efficiently.

In view of the massive bailout package for Air India from the taxpayers’ money, do you think that the Turnaround Plan (TAP) for the airline —monitored by the government — will succeed?

As long as the inherent weaknesses of the management structure (board of directors, chief executive, senior management), and of the work culture, are not addressed, no TAP can succeed. Mere infusion of funds is unlikely to help as the management structure responsible for AI’s decline in recent years (through faulty policies) has been given the job of turning the airline around. This is ironical.

The reason why the airline has been consistently losing market share and figuring way down in terms of on-time performance and load factor amongst all airlines should have been studied for remedial action if the TAP were to have any chance of success.

A total of 111 aircraft for the erstwhile Air India and Indian Airlines were purchased not long ago. Was this justified? Now the government has proposed a sale and lease-back model for the acquisition of the Boeing 787 Dreamliners. Did AI need these modern aircraft to compete globally?

Acquiring more planes than AI could afford or gainfully employ explains much of its current financial travails. It is a pity that no lessons have been learnt and the government wants to thrust more aircraft on AI. When the need is to consolidate, the airline is planning to induct 27 B787s.

The B787s are fuel efficient, but operating costs will have to be recovered through revenues. Unless the airline can improve its on-time performance, enhance loads, attract premium class passengers, just getting modern planes won’t help.

Is it time to sell the national carrier? Will there be takers?

Air India can be salvaged if structural changes in management can be made and professionals are allowed to run it on commercial terms. There is no hope as long as civil servants manage it with constant interference from the ministry. With its current level of losses and debt, AI cannot be a good business proposition for a potential buyer.

Was AI short-changed by private airlines? Were the interests of the national carrier adequately protected when it was running up big losses?

Several decisions have been taken by the government in recent years to disadvantage AI. There is merit in the widespread speculation that many policy decisions were taken at the behest of private airlines. AI has been unfortunate to have been harmed by its owner to a large extent.

http://www.deccanchronicle.com/editorial/op-ed/%E2%80%98air-india-has-been-harmed-its-owner-government%E2%80%99-625

High attrition and demand from foreign airlines sustain jobs in Aviation

The paradox of the sector is that it serves one of the world’s fastest growing economies and posts double-digit traffic growth, yet estimates say the carriers, put together, have lost $2.5 billion in the 12 months ending March 2012.

The Indian aviation industry entered 2012 facing its most critical challenge since the industry reforms of 2004. The paradox of the sector is that it serves one of the world’s fastest growing economies and posts double-digit traffic growth, yet estimates say the carriers, put together, have lost $2.5 billion in the 12 months ending March 2012.

Not surprisingly, the employment opportunities too are affected. Until 2010, a consistent yearly intake of around 300-400 trainee cabin crew and ground staff per domestic carrier was visible. This number has come down by at least 50 to 60 per cent in the wake of slumping business. The pilots are particularly unlucky; with more than enough trained staff in the market, supply is always more than demand.

But all is not lost for the rest of the crew. Barring Kingfisher and Air India, recruitment of ground staff and cabin crew by the other airlines is going on, given the high attrition rates. Plus, foreign airlines perceive India as a fertile poaching space.

“Airlines like Indigo and Spicejet, which are expanding fast, put out ads everyday for trained cabin crew as well as freshers who meet the basic requirements of being +2 pass, presentable and having good communication skills,” says a consultant for a domestic airline. The crew training institutes are thus gung-ho. The Aptech Aviation and Hospitality Academy, Mumbai, says it inducted about 4,000 students last year, of which 3,500 have been placed as cabin crew and ground staff with various aviation companies. Frankfinn Airhostess Academy has entered the Limca Book of Records for best cabin placements with 115 people placed over 16 days. It created the record four times in 2005, 2006, 2009 and 2010.

Ravi Dighe, head, Aptech Aviation and Chief Student Development, says, “Yes, AI and Kingfisher are facing problems. But that does not mean the entire sector is going down the drain. Passenger traffic is growing at 15 to 16 per cent and cargo is moving in excess of 15 to 17 per cent annually. So there is no cut in requirement as far as services are concerned. In fact, India is considered the largest manpower provider to global airports with the number in excess of 2.5 lakh.”

‘Global’ is the key word. At least 8-10 per cent of Gulf crews are Indian. Every Lufthansa flight entering the sector has two Indian cabin staffers, and its Brussels airport office employs staff speaking Indian languages. So is the case with British Airways, Cathay Pacific and Qatar Airways. Qatar, in fact, has been conducting walk-in interviews in metros and small towns in India from where it plans to start flights.

“Cabin crew recruitment is open throughout the year for reasons such as business expansion as well as natural attrition which can reach up to 20 per cent per year,” says Amal Mohamed AlGharibi, communication specialist at Gulf Air. “Indian cabin staff are extremely competent. They are multi-lingual, service- and customer-oriented, highly educated and punctual. Thus Indians are among the top five nationalities on our team.” While the majority of the recruits sign on as cabin crew, others join the call centres, ground services, sales and marketing and catering divisions.

Emirates, which is adding 35 new aircraft this year, is also recruiting Indians in large numbers. “We recruit talent from India not just for India operations but also for our global network of 125 destinations across 74 countries, including our headquarters in Dubai. Indian candidates have the inherent advantage of speaking English. We recruited 4,000 cabin crew and ground staff last year,” says an Emirates spokesperson, adding the first good news for pilots: “We plan to hire over 300 pilots this financial year.”

The demand for staff is coming from helicopter operators too. Says Dighe: “The helicopter wing has huge potential and will grow at a very fast pace in the next three years. There is requirement at offshore units such as ONGC, industrial units for emergencies, and for tourism, particularly at religious places. Forty helicopters fly each day from Katra to Vaishno Devi between 8 am and 5 pm. This is bound to increase. There will also be huge demand for professionals who can manage the customer interface. Also, since the ground staff is susceptible to attrition, demand never fades.”

http://newindianexpress.com/business/article567146.ece?service=print

Metros to get second airports due to growing air traffic

New Delhi: Burgeoning air traffic would prompt construction of second airports in five major metros and a third in Mumbai as an estimated $30 billion would be invested on such infrastructure over the next decade, an aviation consultancy firm has said.

Over the next 10 years, Bangalore, Chennai, Delhi, Hyderabad and Kolkata are expected to provision for a second airport and Mumbai would need to start preparing for a third one, based on current growth estimates, the Centre for Asia Pacific Aviation (CAPA) said in a study.

High traffic growth was also being witnessed at several non-metros with several airports having “already outgrown their existing infrastructure”, the Sydney-based aviation consultancy firm said.

“Projected growth will necessitate provisioning for a second airport at each of the metro cities and a third in the case of Mumbai, paving the way for a total of 13 metro airports. There is the possibility of a second airport in Ahmedabad as well,” it said.

The Indian airport sector is expected to see a further investment of $30 billion including the cost of upgrading existing airports, provisioning for second airports at each of the metros and construction of greenfield airports.

Noting that most metro airports barring Mumbai have adequate capacity for the next few years, CAPA said even in cases like Delhi and Bangalore which have new airports and sufficient capacity, the rate of growth was such that planning is needed in this decade for building of second airports.

The same was true of Chennai airport which would run out of capacity before 2017, it said.

Observing that most of the 35 key non-metro airports need new capacity now or very shortly, it said cities like Pune, Patna, Jaipur, Nagpur and Lucknow had “urgent requirements”.

“In most cases the state governments do not recognise the implications of failing to address this issue. New terminals will assist in some cases where land is available, but in many cities there is a need to look at building new airports with a long-term perspective,” CAPA said.

Given the scarcity of land in India, it said the country must prepare long-term airport development plans which can meet requirements for the next 20-30 years.

But the Airports Authority of India (AAI) has “no capital expenditure programmes scheduled beyond the end of the 12th Five Year Plan which ends in 2017″.

It said the financial position of the AAI and other public-private partnership airports was stretched, implying that “they are unable to commit sufficient funding to long- term projects”.

Airport capacity shortages were also compounded by additional challenges in the form of surface transportation links, limited availability of skilled manpower and airspace congestion, “leaving India poorly prepared to handle requirements”, the CAPA study said.

While air traffic handled by privatised airports had grown from only two per cent in 2000 to as high as 60 percent, the low-cost model dominating the domestic market, with close to 70 percent market share, had created a new set of challenges and opportunities, it said.

At present, 14 greenfield airports have been given in-principle approval by the government, a major airport facility was being planned for Pune and a greenfield airport being considered for Nalanda in Bihar.
http://www.firstpost.com/business/metros-to-get-second-airports-due-to-growing-air-traffic-377872.html

Air India’s winter schedule in trouble

Air India’s scheduling and rostering department is in a fix. The officials are not able to plan ahead for the upcoming winter schedule as the management is not sure how many pilots will be on board after the recent strike.

Over 400 Air India pilots went on strike for nearly two months.

“The decisions are pending. While the Air India is pitching to withdraw its case from the High Court, the pilots who had gone on agitation may do so again if the management does not reinstates all of them without any victimisation. The process is still on and hence we are not planning ahead,” an official said.

Any schedule for an airline is prepared well in advance as it has to go through a series of approvals. An internal process would involve identifying new routes and withdrawing few existing ones, keeping a buffer for CAT III compliant aircraft and crew and selecting the optimum routes.

There are several meetings taking place between AAI officials and representatives of all airlines to fix slots to avoid too many departures and arrivals being scheduled at the same time.

Air India had, however, recently revealed its tentative Australia schedule where it was planning to operate to Melbourne and Sydney from September with its brand new Boeing 787 Dreamliners. Air India had also factored in a possibility of operating its 777 fleet on these routes.

http://newindianexpress.com/nation/article568032.ece

Kingfisher pilots plan to move labour court over salary

MUMBAI: With the Kingfisher Airline management maintaining a stoic silence over the payment of salary dues, a section of its pilots are contemplating to drag the management to the labour court, sources said.

"(Airline) Chairman Vijay Mallya's communication to the employees conceals more than it reveals. While he claims over 75 per cent staff have been paid, he conveniently ignores the fact that he has still to pay four months' salaries to them. Now we have come to a situation where we are left with no option but to move the labour court over the issue," airline sources told PTI here.

A group of pilots are in consultation with lawyers in this regard, they said, adding that they are likely to move the court some time this week.

In the absence of a trade union at the airline for its nearly 1,700 employees, the pilots are planning to approach the court in groups, they said.

Notably, none of the five private airlines have trade unions. A few years back, a group of Jet pilots had tried to form a union, but the move was nipped in the bud by the management.

The debt-ridden airline has paid February salaries to around 75 percent of the staff, while the rest are yet to get their dues.

"Unfortunately, the airline is keeping mum on when it will pay the salaries for March, April, May and June," they said.

Mallya, who shot off an emotional letter to his staff yesterday after a large number of its employees went on a strike leading to cancellation of over 40 flights, had said, "The commitment made by chief executive Sanjay Aggarwal and executive vice president Hitesh Patel regarding salaries recently have been met to the extent of 75 percent."

Mallya, however, gave no assurance by when the remaining salary dues would be cleared.

He also asked the agitating employees not to talk to the media or "disgrace" the company saying it would affect the recapitalisation efforts.

Reacting sharply to Mallya's letter, some pilots had said there could not be a bigger disgrace to the company than defaulting on payments to its aircraft lessors, airport operators, oil marketing firms, the government, apart from the salaries of its employees.

http://timesofindia.indiatimes.com/business/india-business/Kingfisher-pilots-plan-to-move-labour-court-over-salary/articleshow/14960253.cms

New runway at Bangalore airport may affect IAF training

The proposed second runway at the Bangalore International Airport (BIA) is likely to have an adverse impact on the Indian Air Force (IAF) pilots’ training activities at its Yelahanka airbase here.

The IAF and BIA operate in close proximity and the distance between their existing runways is around 5.3 nautical miles (NM), where 1 NM equals to 1.86 km. The proposed runway at the airport will bring them even closer. The distance between extended centre line of the BIA and the flying circuit at the Yelahanka base is 2.85 NM, while the distance between the extended centre line at the proposed second runway and the flying circuit at the air base will be only 1.82 NM. The concern expressed in some quarters is that the reduced distance between area of operations of two entities will also mean reduction in the airspace safety margin along with high traffic density.

The BIA is one of the busiest airports in the country, while at Yelahanka, IAF trains its pilots on AN-32 and Dornier transport aircraft. Also, helicopter pilots are trained here all through the year. In fact, the rising air traffic has put pressure all the three airports -- Yelahanka, BIA and HAL, which now operates only private aircraft.

Keeping that concern in view, the Ministry of Civil Aviation (MoCA) has constituted a coordination committee including BIA, IAF and HAL airports. “The agenda has been to discuss challenges and issues to have an integrated airspace management approach in the region. The committee will look into all the operational and safety aspects,” said a Bangalore International Airport Limited (BIAL) official. The BIAL official said the second runway location on the southern side was always a part of the master plan and has been approved by MoCA. Currently, it is in the planning stage and is likely to be completed in the first quarter of 2015, the official added.

The IAF is watching the developments keenly. “The new runway will reduce the distance, but there is no problem as we have proper Standard Operating Procedures put in place,” Air Marshal Rajinder Singh, Air Officer Commanding-in-Chief of IAF Training Command said. According to the Training Command Chief, the Air Force Military Liaison (AFML) Unit established at the BIA is helping in expediting the clearances for take-off and landings at Yelahanka and number of radars are also put in place for efficient airspace management between them.

During the recent meeting to discuss the issue of second runway, the BIA officials are said to have assured IAF that its activities will not be impacted. A high level committee consisting of officers from IAF, BIAL, Airports Authority of India, Ministry of Civil Aviation and other agencies are currently looking into the possible impact of second runway on IAF activities.

http://newindianexpress.com/nation/article568033.ece

Kingfisher says flights operating normally

New Delhi, July 15:

Kingfisher Airlines has claimed that all its scheduled flights were "operating normally".

On Saturday, the airline cancelled over 30 flights as sections of employees stayed home to protest non-payment of wages for the last five months.

It was not inmediately clear whether all employees who had stayed away from work on Saturday had reported back to duty.

Sources in the airline conceeded that some employees had indeed returned to work. There was no immediate news on whether the wages had been paid.

The cash-strapped airlines owes Rs 6,500 crore to 17 banks and reported a loss of Rs 1,151.52 crore during the fourth quarter of the last fiscal. It currently operates 100 daily services down from over 400 at the beginning of the year.

http://www.thehindubusinessline.com/industry-and-economy/logistics/article3642451.ece?homepage=true&ref=wl_home

Airbus CEO says Boeing is waging a price war

FRANKFURT (Reuters) - The chief executive of Airbus said U.S. rival Boeing has slashed the prices of Boeing 737 Max aircraft in a bid to grab market share from Airbus A320neo, a German newspaper reported on Sunday.

"Boeing is desperately trying now to boost the market share of B737 Max. They are very aggressive when it comes to pricing," Fabrice Bregier said in an interview with Welt am Sonntag.

For the full year, Boeing will likely announce a higher level of new orders for the whole group than Airbus, he added.

Asked how EADS would protect itself in case of a euro zone break up, he said: "Our parent EADS is examining right now whether we should set up our own bank. With its 10 billion euros ($12.24 billion), EADS has a strong cash position and is doing everything in order to preserve this cash

http://news.yahoo.com/airbus-ceo-says-boeing-waging-price-war-report-102608684--sector.html

IATA agents’ body seeks restoration of commissions

Chennai, July 14:

The IATA Agents’ Association of India is seeking withdrawal of a transaction fee scheme announced by Air India and restoration of the current 3 per cent commission. According to some members of the association, consumers will not be willing to pay a transaction fee as they can book their tickets without paying that fee by using the airline’s Web site directly.

Mr V. L. Jaghannathan, General Secretary of the association, said travel agents contribute more than 75 per cent of Air India’s passenger load, both in the domestic and international sectors. “And, it’s unfair to reduce our commission to a paltry 1 per cent and ask us to charge transaction fee from the passenger.”

Quoting a DGCA (Director General of Civil Aviation) order dated March 5, 2010, he said charging transaction fee is illegal and commission is an integral part of the fare tariff.

http://www.thehindubusinessline.com/todays-paper/tp-economy/article3640483.ece

New terminal gets a big thumbs-up from flyers

Facility has capacity to handle 54,000 passengers a day

Kolkata, July 15:

Footballer Baichung Bhutia was visibly surprised to see the spruced-up terminal of the Kolkata airport. “It’s a dramatic change,” he said.

Baichung was amongst the few lucky fliers who had been on the IndiGo flight that landed at the new terminal of the Kolkata airport from Mumbai this afternoon.

Trial Run

The trial run of the integrated terminal of the modernised Netaji Subhas Chandra Bose Airport (also called Kolkata airport) was successfully carried out on Sunday afternoon.

Operations for domestic airlines are likely to begin from October this year. “The first trial run has been successful. We will conduct the second trial run in a fortnight and then do one by one,” Mr B. P. Sharma, director of the Kolkata airport, said. He added that customs and immigration set-ups were expected to become operational over the next couple months.

Modern facilities

Once fully functional, the terminal can handle nearly 54,000 passengers a day and two crore passengers a year.

Spread over 20 lakh square feet, the modernised facility will have 104 check-in counters, 25 security kiosks, 18 aerobridges, 53 remote stands for aircraft, hi-tech luggage handling system and other amenities. Passengers were happy with the facilities and arrangements made at the terminal building of the airport.

According to a frequent flier, Mr Debatra Ghosh, the new terminal was ‘fantastic’ and ‘matched up to the levels of Delhi airport (T3)’.

Mr Pushkar Mukherjee was awe-struck when he landed at the new Kolkata airport this afternoon. A frequent flier from Mumbai, he found the new terminal in stark contrast to the old one.

“It took me just five minutes to reach the terminal gate from the flight. It was unbelievable. Earlier, it used to take at least 20 minutes,” Mr Mukherjee said. Officials overseeing the luggage handling trials maintained that it took just about two minutes to handle 2,000 trolleys from the bay to terminal.

According to the State Transport Secretary, Mr B. P. Gopalika, who was present at the airport, maintenance of such a well-equipped airport terminal should be given priority. Sources at the Airports Authority of India (AAI) said that the authorities are likely to hand over the maintenance of the new terminal to a private player. “AAI in the process of floating a tender for system maintenance and housekeeping of the new terminal,” an official added.

http://www.thehindubusinessline.com/todays-paper/tp-others/tp-states/article3643567.ece

Number Crunch - In crisis, passenger traffic hit more than cargo

The slowdown in 2011-12 seems to confirm fears that the worst is not yet over for domestic airlines.

In times of economic crisis, air passenger traffic undergoes a sharper decline than cargo freight. An analysis of domestic air passenger traffic prior to the 2008 global financial crisis shows that the passenger load factor of scheduled airlines rose consistently from 64.9 per cent in 2004-05 to 68.9 per cent in 2007-08. In tandem, passenger traffic more than doubled during the period. But in 2008-09, the year of the crisis, the PLF declined drastically to 63.7 per cent, with the number of passengers declining by 11.1 per cent.

In the case of cargo, the weight load factor (WLF) rose from 63.9 per cent in 2004-05 to 67.1 per cent in 2005-06 and 2006-07. This was accompanied by an 8.7 per cent increase in volumes. But the WLF subsequently fell to 65.7 per cent as the crisis first began to manifest itself in 2007-08, though volumes still rose by 13.6 per cent. In 2008-09, the weight load factor plummeted further to 59.6 per cent, with the volume of cargo transported by air declining by 8.2 per cent.

Immediate recovery

Passenger and cargo air traffic witnessed an immediate recovery thereafter in the country: The PLF rose to 72 per cent and the WLF to 65.6 per cent in 2009-10, accompanied by a 14.9 per cent increase in passenger numbers and an 18.1 per cent rise in domestic cargo transport. Things improved further in 2010-11, with the PLF and WLF rising to 77.1 per cent and 70.2 per cent, respectively. The volume of traffic also rose by 19.2 per cent in the case of passengers and 17.5 per cent for cargo. Indian airlines are now flying through turbulent times again, with utilisation of seats and cargo capacity witnessing a dip in 2011-12. Domestic air passenger traffic in India rose by 12.6 per cent in 2011-12, but the passenger load factor (PLF) as a percentage of available seats dipped by 2 percentage points to 75.1 per cent.

The cargo weight load factor as a percentage of available capacity also dipped to 67.8 per cent during the year from 70.2 per cent in the previous year, with the total cargo volume dropping by 5.6 per cent. The slowdown in 2011-12 seems to confirm fears that the worst is not yet over for domestic airlines. The reduction in passenger and weight load factors implies that the airlines are operating at sub-optimal capacity, translating into lower efficiency amid burgeoning fuel costs.

Worst performer

A closer look at individual airlines shows that loss-making Air India was the worst-performer among the major domestic scheduled airlines in terms of PLF and WLF in 2011-12, dragging down the overall performance in the sector. In contrast, Indigo, Go Air, Spice Jet and even Kingfisher were able to better the average performance of the sector in terms of PLF and WLF. On the other hand, while Jet Airways and Indian Airlines were above passenger traffic benchmarks, they were below average in terms of WLF. But the performance of most of these airlines was worse than in 2010-11, whereas Air India was able to improve its performance marginally (see table).

http://www.thehindubusinessline.com/features/investment-world/macro-view/article3639828.ece

Airlines stressing out bank assets

Banks have burnt their fingers by lending to the aviation sector, which is under immense pressure due to rising fuel costs, mismanagement and predatory pricing.

The turmoil in the airline sector is beginning to affect the loan books of banks. Kingfisher Airlines is liquidating assets to meet its debt obligations.

Banks have burnt their fingers by lending to this sector, which is under immense pressure due to rising fuel costs, mismanagement and predatory pricing.

According to the Financial Stability Report released recently by the RBI, 10 banks (predominantly public sector banks) accounted for around 86 per cent of the credit to the airline sector.

This indicates the disproportionate share of loans to airlines in the books of few banks.

Air India and Kingfisher are the two major airlines which have seen their loans either restructured or categorised as NPAs.

Bank credit

Kingfisher has borrowings (short- and long-term) of Rs 8,023 crore as of March 2012 with majority of exposure classified as non-performing assets.

While the data is not available for Air India, reports estimate Rs 40,000 crore of loan exposure to Air India (details of the overall debt restructured was not available).

As of March 2012, the share of bank credit to the aviation sector is close to a per cent of the overall bank credit. Non-performing loans from this segment account for more than 4 per cent of the total NPAs of banks. Restructured assets of this sector account for 12 per cent share in the entire restructured universe.

The stressed assets (NPAs and restructured assets) of the aviation sector account for close to 0.9 per cent of the overall stressed assets of the banking sector.

According to RBI data, nearly three-fourths of the top banks’ (loan exposure of more than Rs 1000 crore) loans to the aviation sector are either impaired or restructured.

Public sector banks which have been witnessing higher proportion of restructured loans were among the top banks to have exposure to airline companies, particularly Air-India.

Restructured loans

The banks with higher proportion of aviation loans as restructured loans include Oriental Bank of Commerce (17 per cent), Bank of Baroda (16 per cent), PNB (12 per cent) and IOB (11 per cent). Around 10 public sector banks (which have disclosed their restructured aviation loans) had outstanding restructured assets worth Rs 15,800 crore.

SBI, for instance, had Rs 1,216 crore of restructured and another Rs 1,361 crore worth of loans classified as NPAs. PNB had cumulatively restructured Rs 3204 crore of loans to aviation sector as of March 2012.

Bank of Baroda, Central Bank of India, OBC and IDBI Bank have Rs 2400 crore, Rs 1800 crore, Rs 1615 crore and Rs 1474 crore worth restructured loans respectively.

While large proportion of loans are restructured, banks can get back some of their loans to Kingfisher by liquidating the company’s assets.

Government guarantee in the case of Air India also reduces the non-recovery risk.

http://www.thehindubusinessline.com/features/investment-world/macro-view

Turbulence rocks Indian carriers

With or without Kingfisher, India’s aviation sector may continue to face headwinds.

The anticipated shakeout in the Indian aviation industry seems to be underway. High debt levels, large accumulated losses, costly fuel, and inability to raise fares adequately have contributed to the pain in the sector.

Palliative measures such as allowing foreign airlines to invest in Indian carriers are still work-in-progress and may come too late for those which need it urgently.

The most visible casualty could be Kingfisher Airlines. Its shrunken operations have relegated it from being the second largest player to the smallest airline in the domestic skies.

Lenders are tightening the screws and the company has resorted to some asset sales to ease the pressure. But many expect the airline to shut shop sooner than later.

Trouble across the board

Most other players too are not doing well. Like Kingfisher, the other two listed airlines — Jet Airways and SpiceJet — posted record losses in FY-12. Jet’s consolidated debt-to-equity ratio is at more than 80 times while SpiceJet’s net worth has been eroded.

Air India’s financial situation is also precarious but it keeps the show running, thanks to government (taxpayer) handouts.

But recovery is a long way off.

The recent prolonged strike by a section of its pilots has further dented the Air India’s brand and added to its losses. Low-cost carrier, GoAir, is also reported to have made losses last fiscal.

IndiGo is the only airline said to be in profits. But while it has got good press regarding its efficient operations, sceptics attribute IndiGo’s profitability to sale-and-leaseback transactions.

Market share gain marginal

How will Kingfisher’s possible exit affect other airlines? For one, the rest of the players will benefit from redistribution of the beleaguered airline’s market share. But this will be marginal, given that much of the share has already been re-distributed over the past 12 months.

As Kingfisher’s domestic market share fell from 20.2 per cent in May 2011 to 5.2 per cent in May 2012, other airlines, including Air India, improved their share of the pie.

Low-cost carriers benefitted the most. For instance, IndiGo increased its market share from 20.1 per cent in May 2011 to 24.9 per cent in May 2012, and SpiceJet grew its share from 14.4 per cent to 18.5 per cent.

Pricing discipline important

The industry could also benefit from a decrease in the instances of predatory pricing. In the past, there have been allegations that Kingfisher Airlines and Air India priced their tickets too low in an attempt to recoup market share.

Sane pricing practices which recover costs and provide for profit margins are imperative if the industry needs to sustain itself in the long run. It is important that all other players, including Air India, maintain pricing discipline.

But oversupply along with decline in passenger traffic growth could tie down airlines. Even with Kingfisher and Air India curtailing operations, the growth in capacity (measured in available seat kilometres) of the Indian aviation sector exceeded growth in demand (measured in revenue passenger kilometres) in 11 of the past 13 months.

In some months, the gap was as wide as 6 percentage points. Much of the new supply was added by the relatively better-off low cost carriers.

They have also placed large orders for new aircraft in anticipation of strong growth. Overcapacities may cause load factors to dip and lead to pricing pressure, similar to the situation in 2008 and 2009.

Complicating the picture could be the decline in passenger traffic growth. During January 2012 to May 2012, passengers carried by domestic airlines grew by 5.3 per cent, much lower than the growth in mid-to-high-teens seen in the previous calendars.

Traffic growth may have declined due to the rise in air fares in 2012. This underlines the price versus load factor trade-off faced by the industry. Uncertain economic conditions could also keep demand muted. Calibration in fleet addition will hence be essential. Especially as costs remain high.

Fuel cost pressure

The cost of aviation turbine fuel (ATF) has moderated in recent months; yet, it remains costlier than a year ago. A kilolitre of the fuel now costs Rs 61,169 in Delhi, 10 per cent less than Rs 67,800 on April 1, this year, but 9 per cent higher than the Rs 56,247 a year back.

The steep fall in the rupee in recent months has blunted some of the benefits.

Also, the cost of the fuel varies widely across the country due to different state sale tax rates. For the listed airlines, fuel cost accounted for 45-75 per cent of sales in the March 2012 quarter.

Magic pills?

Much hope has been riding on the proposed move to allow foreign airlines to invest up to 49 per cent in Indian carriers.

There are expectations that the process will be fast-tracked after the impending Presidential elections. But this may come late for airlines such as Kingfisher, which are gasping for funds. In any case, it remains to be seen whether foreign airlines will be ready to invest in companies with parlous financials.

If yes, at what cost? The other relief measure — direct import of ATF to reduce tax — has been allowed and some airlines have obtained approvals. But given the challenges involved in direct fuel import, its viability is open to question.

With or without Kingfisher, India’s aviation sector may continue to face headwinds. The possibility of more airlines slipping badly cannot be ruled out.

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Air India, Indian still operate as 2 airlines’

Air India pilots may have called off their agitation, but their action again raised questions on the merger of Air India and Indian. In an exclusive interview the first Chairman and Managing Director of the merged Air India, Mr V. Thulasidas, outlines the reasons and advantages of the merger and why it has not worked.

In the Parliamentary Committee on Public Undertakings 2009-10 report, there are several instances of senior airline functionaries stating that the merger process has not worked anywhere in the world. What promoted the Government to go for it?

It was no one’s case that the merger of Air India and Indian Airlines was going to be easy. But to say that the merger process has not worked anywhere in the world is stretching facts. Look around, you will find that airline mergers have taken place all over the world successfully and are happening even now.

I remember the preliminary discussion on the possibility of merger that was held among senior officers of the two airlines. Every one present stated that the merger was necessary for the survival of the national carriers. There was total acceptance in the Ministry of Civil Aviation and in a meeting held in the PMO.

The case for merger was apparently so strong that the entire spectrum of decision making in the Government was in its favour, including the Committee of Secretaries, a Group of Ministers and the Cabinet. The context was unprecedented and increasing competition in the airline business, both in India and globally, by which the fairly secure position enjoyed by the two national carriers had come under severe challenge. The growing economy had led to a significant increase in demand for air travel, foreign airlines had stepped up their capacity in India and private carriers had become strong in the domestic market and were getting into the international market.

The national carriers were operating virtually two separate networks, one predominantly domestic with a few international flights, and the other exclusively international with no domestic network. All efforts made in the past, including in my time, to bring the two airlines to align their networks to provide a smooth transition from domestic to international flights and vice versa had failed. Both sides were determined to fight for their turf and not yield an inch. The only option, other than merger, would have been for Air India to start a domestic network and for Indian Airlines to launch long-haul flights.

What were some of the other advantages of the merger considered at that time?

There were the advantages to be derived through pooling of resources, common marketing and sales, reduction in expenditure through sharing of assets, economies of scale in procurement of stores and, finally, the clout the combined airline could enjoy, apart from the increased load the combined airline could attract by combining domestic and international networks.

Then why is the merger being criticised?

It is being criticised for other reasons. People need to understand that what has happened so far is just an articulation of the decision to merge. The legal formalities of combining the two companies have been completed, but the two airlines have not been combined. It is five years now but the airlines still operate as two. Cosmetics alone have changed. The people, the most important resource, are still separate and the networks have still not been integrated. If a passenger has to travel on both domestic and international legs of this airline, she still does not enjoy smooth transition, not even smooth confirmation of tickets. Bickering among the employees of the two sides has, if anything, only increased.

Does the recent agitation by sections of Air India pilots put a question mark on the entire merger process?

Rather than put a question mark on the merger, it underlines the problem created by non-implementation of the merger process. If manpower integration had been completed as originally envisaged and as per the original timeline, pilots of both wings would have been flying aircraft of both sides as part of an integrated cadre of pilots.

How was the merger going to tackle the separate work cultures, timings and seniority rules of the two airlines?

If two airlines can be merged only if they have the same work culture, network schedule or HR policies, no merger would have taken place in the world. It was the difference in the networks and their complementarity that was the primary need and justification for the merger. If the two airlines were operating only similar networks, the merger would have been more difficult to manage.

Work culture is something to be modified through appropriate re-training, incentives/disincentives and HR policies. There could be some who will refuse to change; they should have no place in the new airline.

HR policies have to be unified. Neither side can insist that they should continue to have their own policy in the new set up; there has to be a new set of policies.

There are many who feel that demerger and having two separate airlines under a holding company is the only way forward. Will you agree?

I do not think that the only option is to demerge, but merger in the form of a holding company and two separate wings under it can be an option. But before that, it is necessary to come to the conclusion that the Government and the airline management do not have the will to complete the merger process as originally planned. The problem is not merger but the fact that the merger has not been achieved. If someone tries to say that the merger has not been achieved because it is not achievable, I do not agree. Merger has not been achieved as it has not even been attempted. I can vouch for it that we had concrete plans to integrate various aspects of the two airlines, including the manpower, with clear timelines. We were on target when I retired in 2008. Someone should study why this process was not carried forward from April 2008 onwards.

Air India and Indian were profitable between 2003-04 and 2005-06. But from 2006-07 the new merged company has only seen its losses mount. Was this anticipated?

There are two factors to be taken into account while analysing the losses incurred from 2006-07. First, airlines in India were gradually getting into losses around this time, thanks to rapidly rising costs, increasing competition, overcapacity in the market and falling revenues. Secondly, merger led to a certain amount of strain on the operation of the new airline that ought to have been overcome through effective integration of operations. The fact that integration is yet a distant dream has kept the airline from making money.

What were the benefits of the merger which should have kicked in by now?

The main benefit ought to have been seamless transfer from domestic to international flights which would have led to an increase in traffic volumes, greater revenues and profits. Merger, implemented properly, would have taken Air India into Star Alliance and that would have added to traffic further. An integrated and re-trained manpower would have been the greatest gain and not the squabbling and disgruntled set of people now.

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