AI faltered with DIAL, AAI bore the brunt

Around Rs 250 crore penalty was adjusted against the 46% revenue share from AAI since 2011

Air India (AI) and Airport Authority of India (AAI) may be different government entities but when it came to the pending AI’sdues to Delhi airport operator (DIAL), around Rs 250 crore was adjusted against the 46 per cent revenue share of AAI from the airport since 2011.

Confirming this, a senior AAI official said, “As Air India will be paying its pending dues to DIAL in a week or so, we are expecting DIAL to pay the amount at an interest rate of 9.5 per cent.”

However, DIAL denied that it was adjusting AI’s pending dues against AAI’s revenue share.

According to DIAL spokesperson, “DIAL has not withheld any revenue share of AAI and pays it regularly in line with concession terms. In line with accounting standards the Board of DIAL in October 2011 decided to recognize Air India revenue on receipt basis, given timing uncertainty.”

Air India owes DIAL a total of Rs 516 Crore [excluding interest as of Dec 31, 2012 which includes ADF and PSF (Security component)] amounting to Rs 160 crore on which there is no revenue share. The remaining unpaid dues towards revenue of Rs 356 crore will be accounted on receipt basis and revenue share shall be paid accordingly, he added.

However, according to an aviation expert, “DIAL was totally justified in holding back the share of revenue that they never received. It cannot be paying on behalf of defaulting airlines.”

Though Air India was also faltering on payments to Mumbai International Airport Limited (MIAL) yet it did not resort to withholding payments from AAI’s revenue share, the official added.

Of Rs 2,000 crore released by the finance ministry for Air India’s turnaround plan in the winter session of the parliament, AI will be clearing its dues first to all the private airport operators and PLIs (Productivity Linked Incentives) to the employees. Air India was expected to receive Rs 10,000 crore in 2012-13 but it received only Rs 6,000 crore.

“As AI will be receiving remaining Rs 4,000 crore in next budget session, we are planning to clear all its dues to oil companies till April. With this, AI will be free of all its dues to airport operators and oil companies,” said as senior Air India official.

Delhi airport is owned by a consortium. The GMR Group owns 50.1 per cent, AAI owns 26 per cent, Fraport AG and Malaysia Airport hold 10 per cent each, and India Development Fund owns 3.9 per cent. DIAL (run by GMR) is supposed to share 46 per cent of total revenue with AAI.

Increasingly, the revenue share that AAI receives from DIAL and MIAL is contributing more to its capital expenditure. Of Rs 2095 crore capital expenditure of AAI in 2011-12, around 57 per cent was collectively from DIAL and MIAL.

DIAL has created 11 JVs to operate various non-aeronautical businesses. Its share in the JVs range from 26 to 50 per cent and the revenue share is 15 to 25 per cent. The JVs are for duty-free shops, food stalls, advertising, parking, fuel supply, cargo and other services.

http://business-standard.com/india/news/ai-faltereddial-aai-borebrunt/204122/on

Jet-Etihad deal: A win-win

For the two players, a strategic partnership would mean entry into new markets

On Tuesday, commerce minister Anand Sharma, who has played a key role in shaping the country’s foreign investment policy, said that the top management of Etihad Airways would be meeting him this week. Analysts were quick to conclude that Etihad was very close to picking up a stake in the Naresh Goyal-controlled Jet Airways. The possibility of a deal, naturally, pushed up Jet Airways share price. While no financial details of the deal have been forthcoming, experts say that the Abu Dhabi-based airlines will pick up a 24 per cent stake in Jet Airways for over $300 million.

If it fructifies, the transaction will be the first investment by a foreign airline in the Indian skies after the government liberalised the foreign direct investment policy a few weeks ago. Under the new policy, it has permitted foreign carriers to invest directly up to 49 per cent in an Indian domestic carrier. The liberalisation comes at a time when the Indian market is trying to extricate itself from a serious financial crisis, and airlines are looking for fresh cash infusion to grow. 

After all, the market last year shrank 8-10 per cent due to high fares, and full-service carrier Kingfisher Airlines had to close its service as it was unable to face the onslaught of low-cost carriers which have grabbed over 65 per cent of the market. Even Jet Airways, a full-service carrier, in order to maintain its market share, was impelled to revamp its operations moving nearly 60 per cent of its domestic capacity and offer it at low fares under Jet Konnect. The only silver lining has been that airlines have temporarily cashed in on the vacuum left by Kingfisher Airlines’ exit by increasing fares. But the question is how long can it last if passenger growth continues to falter? 

AS THEY STAND
	JET AIRWAYS	ETIHAD AIRWAYS
Market cap	Rs 4,800 crore	Private company
Fleet size	96	67
Destinations	21 international 53 Indian	327 destinations (includes code share)
MARKET SHARE
Domestic	23.80%	Not applicable
International	14.30%	1.76% (International traffic from India)
Equity investment	Air Sahara (rebranded as Jet Konnect)	airberlin (29.21%) Air Seychelles (40%) Virgin Australia (10%) Aer Lingus (2.98%)
Source: company website

Clearly, the sector is not out of the woods. So why is Etihad so keen to put in its money into Jet Airways, especially when the global aviation industry, too, is under a cloud? The answer is simple: Etihad wants to expand in a slowdown when valuations are low; once the market booms, it will be ready with expanded capacity. The airline has always been a pygmy compared to the big boys like Emirates and Qatar which rule the West Asian market. It has a fleet of 67 aircraft, which is nearly a third of Emirates and half of Qatar. In India, too, with less than 2 per cent of the international market, it is a minor player compared to Emirates (over 13 per cent share) and Qatar (over 5 per cent). Etihad has 52 weekly flights to and from India, which is way below Emirates (185 flights) and Qatar (95 flights).

This is why Etihad has always followed a different track from the big boys – to survive and expand. The first key element of its three-pronged strategy is to go in for a bevy of code share agreements. Thus, Etihad has signed up such agreements with over 41 airlines across the globe (compared to only ten by Emirates), which has helped it get additional passengers on its network. Two, it has taken its relationship with these partner airlines to the next level by jointly marketing routes with them. And three, it has taken equity stakes in some of its key airline partners. It has already done so with four: 10 per cent in Virgin Australia, 29 per cent in airberlin, less than 3 per cent in Dublin-based Aer Lingus and, the latest, 40 per cent in Air Seychelles. These alliances have, of course, paid good dividends. For instance, airberlin generated over 300,000 additional passengers on the network of the two airlines and also revenues of over 100 million pounds.

It is a similar gain that Etihad and Jet hope will happen when they eventually tie the knot. Etihad’s chief executive, James Hogan, has made no bones that Asia, particularly India and China, would be the key markets in the days to come. And he has already hinted that he will be looking at “one or two strategic investments” which could be in Asia. He also has in-house talent to help in understanding Jet Airways, as his new CEO of airberlin is none other than Wolfang Prock-Schauerwho was earlier hired by Goyal to run Jet Airways.

Cementing ties
Jet Airways already has an ongoing relationship with Etihad: a code share agreement in India for seven cities and also on the Paris route. This relationship would now be strengthened as part of the airline’s overall global strategy.  Etihad can feed in passengers seamlessly from Abu Dhabi across the country by using Jet Airways’ wide coverage of over 53 cities in India. Currently, Etihad operates to only ten cities in India. Similarly, Jet could bring in passengers from Indian cities to Abu Dhabi, from where they could travel to any destination in West Asia and Africa where Etihad has excellent connectivity.

Jet Airways can also leverage Etihad’s strong presence in Europe by bringing in Indian passengers through Abu Dhabi. That is a win-win for both sides as Jet currently operates only to Brussels, Milan and London in Europe on its own. (Through code-share agreements with Brussels Airlines and Thalys, it offers seamless connectivity to another 14 cities.) Etihad, on the other hand, has a huge network in Europe; it directly flies to over 17 destinations and through its elaborate code-share agreements with around 13 airlines offers seamless connectivity to over 88 cities. That, of course, is not the only route which could be an advantage to both the airlines. The India-North America market is one of the largest and most lucrative in terms of business. Jet Airways currently flies only to Newark and Toronto and through its code-share with United and Air Canada offers connectivity to all key markets in North America. But Etihad can provide an alternative to Indian flyers – they can fly seamlessly from Abu Dhabi to Chicago, New York and Washington, apart from Toronto. And through its code share agreement with American Airlines, it would allow Indians to fly all over the US. 

Adding bulk
The agreement could also save costs. The two airlines could leverage their clout while buying fuel; they could also leverage their bargaining power with Boeing as Etihad has just ordered 50 aircraft from the American company, the bulk of which include the Dreamliners, in association with Air Berlin. Jet Airways, of course, also has a fleet that comprises mostly of Boeings aircraft and could therefore work out similar integrated deals in the future. Also, the two could pare costs by using each other’s ground operations at their hubs. Of course, Etihad would also need to resolve a key problem which it will soon face: to expand its operations in India, it will require more bilaterals as currently as much as 85 per cent of the seats have been exhausted. Also the tie up analyst say could eat into Air India's business in the Middle East as well as in the US and Europe. Analysts say that the Indian government has been chary in opening up the bilaterals with Dubai as well as other West Asian states in order to protect Air India. However, a friendly Indian partner could always be of help in convincing the government, say analysts.

It is clearly a marriage where everyone will be a winner

http://business-standard.com/india/news/jet-etihad-dealwin-win/500421/

SpSpiceJet launches flights to Guangzhou in South China

SpiceJet, the low-cost carrier, will become the only private Indian airline to fly to China starting next week, when it will launch four weekly flights from New Delhi to Guangzhou.

The first flight by an Indian airline to the southern port city — home to one of the biggest Indian expatriate communities in China as well as the centre of the country’s manufacturing heartland — will leave New Delhi on February 8.

While much of India's trade with China is driven by the southern manufacturing provinces, Shanghai is the only major southern mainland city that is connected directly to India, through Air India and Air China flights. The Chinese carrier operates 14 weekly flights to New Delhi, Mumbai and Bangalore, from Shanghai, Chengdu and Beijing, while Air India flies from Shanghai to New Delhi.

Bilateral trade

The lack of adequate direct air connectivity between India and China has been seen by officials in both countries as an obstacle to boosting closer commercial engagement, even as trade has seen rapid growth this past decade. China became India’s biggest trade partner in 2011, with trade reaching $73 billion. Bilateral trade fell to $66 billion last year on account of the downturn.

SpiceJet is looking to target the business community and will focus its China strategy on the southern part of the country. The airline is also looking into launching flights to Macau and Zhuhai, besides Hong Kong. The four times-a-week flight to Guangzhou will depart New Delhi in the evening, and arrive in the city 35 minutes after midnight. The flight duration to Guangzhou will be four hours and 45 minutes on a Boeing 737 aircraft.

Jet Airways became the first Indian carrier to fly to China when it launched a flight from Mumbai to Shanghai and onward to San Francisco in 2008. The flight was subsequently discontinued amid lower than expected load factors and after the carrier began to rationalise its routes on account of financial troubles.

http://www.thehindu.com/todays-paper/tp-business/spicejet-launches-flights-to-guangzhou-in-south-china/article4359017.ece

Air India puts up Dreamliners for sale

With the probe into incidents involving B-787 Dreamliners likely to take some more time to be wrapped up, Air India has decided to put up for sale and leaseback all six newly-acquired Dreamliners.

It has invited bids from prospective lessors by February first week. The six state-of-the-art Dreamliners have been grounded since January 17 and are likely to remain in that state for another month. In all, 50 Dreamliners have been grounded all over the globe following a directive from the U.S. Federal Aviation Administration (FAA) after a fire risk reportedly caused by a battery problem.

Official sources said the national carrier had gone ahead with this plan to cut losses and had the backing of the government as part of its turnaround and financial restructuring plans.

Sale-leaseback is an arrangement in which an owner sells an asset to a leasing firm and, at the same time, leases it (as a lessee) on a long-term basis to retain exclusive possession and use. This frees capital tied up in a fixed asset, while the lender obtains a guaranteed lease.

Air India can claim tax deductions as the asset is no longer owned but leased, which will help it in streamlining its operations and cut costs.

Air India has invited quotations from lessors on or before February 5 on a Request for Proposal (RFP), which said it would sell the aircraft to the lessor and immediately leaseback them under an operating lease for 12 years, with an option to extend. Though the airline is yet to get the seventh plane, scheduled for delivery this month, it has gone ahead and announced in the RFP the sale and leaseback of seven planes. However, the sources indicated that the delivery of the seventh plane could stand deferred in view of the ongoing investigations into the incidents involving the Dreamliner.

Air India plans to sell all its 27 Dreamliner aircraft to a lessor and lease them back to operate by paying monthly rentals, a common fund-raising practice among airlines.

---

·  The national carrier’s plan is to cut losses

·  Dreamliners have been grounded after a fire risk reportedly caused by battery problem

http://www.thehindu.com/todays-paper/tp-national/tp-newdelhi/air-india-puts-up-dreamliners-for-sale/article4359091.ece

Man held over bomb hoax call to airport

The accused allegedly intended to delay a flight to cause trouble to a friend

The Mumbai Police on Tuesday arrested a 38-year-old recruitment agent for making a hoax call to the Mumbai airport threatening to blow up the premises. The accused allegedly did it with the intention of delaying a flight and creating problem for a friend who was to take that flight.

Kabeer Jarumiya Hussain, a resident of Bhendi bazaar, was arrested in Vile Parle by the Crime Branch on Tuesday evening on the basis of a tip-off, police said.

Hussain had earlier called up the helpdesk at the international airport’s 1B terminus on Monday evening around 7.30 p.m. and said a bomb would explode at the airport between 7 p.m. and 10 p.m.

Following the call, emergency alerts and security drills were activated. “No bomb was found. A case was registered at the airport police station under Sections 182, 336, 505(2), 506(1), 507 of the Indian Penal Code along with Section 66(3) of the Information Technology Act and 3(d) of the Suppression of Unlawful Acts Against Safety of Civil Aviation Act,” a police official said.

The accused was nabbed after the authorities traced the number he had called from, the police said.

The accused allegedly intended to delay a flight to cause trouble to a friend

http://www.thehindu.com/todays-paper/tp-national/man-held-over-bomb-hoax-call-to-airport/article4359077.ece

Jet hits labour turbulence over salary freeze

Mumbai, Jan. 29:  

Jet Airways, the country’s premium airline, seems to have run into rough weather, even as the airline is trying to pump in fresh funds by selling some stake to Etihad Airways. Technicians of Jet Airways have been protesting against an alleged intimation by the airline company to freeze salaries at the current level. The airline’s pilots have decided to meet on the same issue in the next few days.

While the technicians, stationed across the country, have been on a “symbolic” protest by wearing black badges for the last six days, pilots of Jet Airways have called for a meeting in Delhi on February 1, according to an official. “Apart from the proposed freeze in salary hikes, we will be discussing issues related to non-payment of arrears and increments,” said a source, adding that this would be followed up by another meeting in Mumbai a few days later.

Meanwhile, Jet Airways has denied the allegations. When contacted, the airline said, “Jet Airways has always adopted a conciliatory open door policy with all its staff including its technicians. In addition, a management team is in constant dialogue and discussions with the technicians, in explaining to them the commercial and other challenges, given the present economic state of the global aviation industry at large and the airline in particular. This is expected to address the issues under discussion, but would also help resolve all future issues through this mechanism.”

The airline added that it has made salary disbursals as per a pre-determined schedule of dates, which are internally communicated to the staff.

Pilots will meet in Delhi, Mumbai in the coming days to discuss the proposed freeze, non-payment of arrears and increments.

http://www.thehindubusinessline.com/todays-paper/tp-oncampus/jet-hits-labour-turbulence-over-salary-freeze/article4358326.ece

Two Air India subsidiaries to become operational from Feb 1

For ground handling, maintenance & repair

New Delhi, Jan. 29:  

Ground handling activity and maintenance and repair of Air India aircraft will be done by two new subsidiary companies of the airline, which will become operational from February 1 this year.

The proposal for setting up the two subsidiaries — Air India Transport Services Ltd (AITSL) and Air India Engineering Services Ltd (AIESL) — has been cleared by the Union Cabinet and is part of the turnaround strategy for the State-run airline. Ground handling activities include checking-in passengers and also ensuring that baggage is tagged and put on to the right aircraft.

The two subsidiaries will be board-run companies with the Air India Chairman and Managing Director as Chairman.

The creation of the two new subsidiaries will see over 13,000 of the 25,000 permanent employees of the airline transferred to the AITSL and AIESL.

Sources said though the employees will be transferred on deputation to the two ‘hived off’ subsidiaries, their working conditions, emoluments and welfare perks would be protected.

Air India will provide Rs 375 crore as capital expenditure over three years beginning this year to AIESL. Similarly, it will provide Rs 393 crore over 12 years beginning this year to the newly set-up subsidiary which will do the ground handling.

The two new companies will pay a royalty to Air India on the revenue that they earn, but payment would start after a gap of a few years. AITSL and AIESL will see Air India’s employee-to-aircraft ratio drop to a more internationally acceptable level of 1:100 from the current level of 1:219.

Sources said AITSL would undertake ground handling activities for the airline at all airports around the country except for those at Delhi, Bangalore, Thiruvananthapuram, Mangalore and Hyderabad.

AITSL revenues are expected to rise to Rs 8,866 crore by 2022 from the current level of Rs 700 crore while the revenue from ground handling will touch Rs 3,100 crore in nine years from the current about Rs 800 crore.

http://www.thehindubusinessline.com/todays-paper/tp-logistics/two-air-india-subsidiaries-to-become-operational-from-feb-1/article4358426.ece

GoAir mulls flying smaller planes to tier-2, 3 cities

Kolkata, Jan. 29:  

The Wadia Group-promoted budget carrier, GoAir, is mulling introduction of flights to smaller cities (tier-2 and tier-3), offering strongest growth opportunities.

According to Giorgio De Roni, Chief Executive Officer of GoAir, the company is exploring opportunities to use smaller — 48-78 seater aircraft (like ATR) — to enter these markets.

The strongest growth is definitely in tier-2 and tier-3 cities. We are analysing an opportunity for diversifying with a smaller aircraft. This again is due to the fact that a smaller aircraft has benefits on fuel charges, landing charges, navigation and parking. It might be worth (the attempt), Roni told Business Line.

Most Indian carriers, except two, already have smaller aircraft.

Profitability

Meanwhile, the company (Go Airlines India Ltd) is expecting to book profits in this fiscal, riding on higher passenger traffic. GoAir booked profits for the first time in 2010-11 but ended up in red in the last fiscal. This year (2012-13), we made profits in two quarters (Q1 and Q3). Our overall profitability will depend on the fourth and last quarter (Jan-March 2013), he said. India witnessed a six per cent decrease (in flyers across the industry) up to December 2012. But GoAir has delivered a 15 per cent growth in terms of passengers and that is why we are confident that we might reach profitability this year, he added. Roni, however, did not elaborate if the anticipated profits in this fiscal will be enough to wipe out the accumulated loss. Market sources said the company registered a net loss of nearly Rs 134 crore in 2011-12, as against a net profit of Rs 60 crore in 2010-11.

IPO plans

While ruling out immediate plans of listing; Roni pointed out that GoAir would be flexible towards the opportunities for going public.

“We should, however, be flexible enough to understand the opportunities. The financial market has been going through turbulent times and it was not worth working on IPOs,” he said.

http://www.thehindubusinessline.com/todays-paper/tp-logistics/goair-mulls-flying-smaller-planes-to-tier2-3-cities/article4358424.ece

SpiceJet to link Delhi, Guangzhou from Feb 8

Mumbai, Jan. 29:  

SpiceJet will connect Delhi with Guangzhou (China) from February 8 by deploying a 189-seater Boeing 737 aircraft on this route. Booking of tickets for flights of these routes are open, the airline said.

SpiceJet will fly on Guangzhou-Delhi route four days a week.   “Guangzhou makes our debut to the Chinese sky. We are offering the air connectivity at a very affordable fare to the passengers from India and China. The service also reiterates growing economic interest between two of the world’s largest economies,” said Neil Mills, SpiceJet’s Chief Executive Officer.

“SpiceJet has been expanding its network in India as well as on the international routes. Guangzhou is also a part of our network expansion,” he added.

http://www.thehindubusinessline.com/todays-paper/tp-logistics/spicejet-to-link-delhi-guangzhou-from-feb-8/article4358423.ece

Salary freeze: Jet Airways pilots to meet on Friday

Mumbai, Jan. 29:  

Jet Airways, the country’s premium airline, seems to have run into rough weather.

Technicians of Jet Airways have been protesting against an alleged intimation by the airline company to freeze salaries at the current level. The airline’s pilots have decided to meet on the same issue in the next few days.

While the technicians, stationed across the country, have been on a “symbolic” protest by wearing black badges for the last six days, pilots of Jet Airways have called for a meeting in Delhi on February 1, according to an official.

“Apart from the proposed freeze in salary hikes, we will be discussing issues related to non-payment of arrears and increments,” said a source, adding that this would be followed up by another meeting in Mumbai a few days later.

Meanwhile, Jet Airways has denied the allegations. When contacted, the airline said, “Jet Airways has always adopted a conciliatory open door policy with all its staff including its technicians.

“In addition, a management team is in constant dialogue and discussions with the technicians, in explaining to them the commercial and other challenges, given the present economic state of the global aviation industry at large and the airline in particular. This is expected to address the issues under discussion, but would also help resolve all future issues through this mechanism.”

The airline added that it has made salary disbursals as per a pre-determined schedule of dates, which are internally communicated to the staff.

Jet Airways has been in talks with Etihad Airways for a possible stake sale.

http://www.thehindubusinessline.com/todays-paper/tp-economy/salary-freeze-jet-airways-pilots-to-meet-on-friday/article4358399.ece