India Poised to be third biggest aviation market by 2020

Addressing the members of Consultative Committee for the Ministry of Civil Aviation in Panjim, Goa, Indian Minister of Civil Aviation, Shri Ajit Singh said that India is poised to be the third biggest aviation market in the world by 2020. He also expressed the hope that as per growth projections the air passenger traffic is estimated to double by 2019-20.

Following is the text of the opening remarks made by the Minister of Civil Aviation Shri Ajit Singh:

“India is the 9th largest aviation market in the world and is poised to be the 3rd biggest by 2020. Indian aviation market witnessed rapid growth in the decade ending 2012-13. Air traffic passenger throughput at Indian airports recorded a CAGR of 13.8 % during the current decade. However, recently there has been a slowdown with Passenger throughput at Indian airports declining to 159.40 million in 2012-13 from 162.30 million in 2011-12, showing a negative growth of 1.8%. Nevertheless, the passenger traffic has picked up again in the second quarter of the current year. As per growth projections the air passenger traffic is estimated to double by 2019-20.

Even though the sector has grown significantly in the last decade, the industry is presently going through a severe economic crisis. The Airline industry combined reported estimated losses of Rs.9771 crores and a debt of Rs.85,865 crores in the FY 2012-13. The spiralling cost of ATF, economic slow-down, devaluation of rupee, low yield, high operational costs and the consequent widening gap between revenue and expenditure contributed to this financial crisis. The flawed perception that flying is the rich men preserve has resulted in the civil aviation sector bearing the burden of high tax regime

The Central Government has taken many initiatives to lessen the stress in the sector and revive it. These include opening up of FDI by airlines up to 49%, permission to import ATF directly by the airlines, approval of TAP/FRP of Air India and a more liberalized policy regime. A decision to permit foreign carriers to invest in the airline industry in India (upto 49%) has already resulted in 3 major investment proposals getting fructified. These investments along with the adoption of international best practices in Management and technology in the airline industry are expected to lay the foundations of a sound turnaround of the aviation industry in India.

Coming to Air India, under the Turn Around Plan till date, the Government has infused an equity of Rs.12200 crores in the last 3 years. Equity infusion by the Government has been linked to achievement of certain milestones like OTP, Yield, PLF etc. by Air India. AI’s performance has been improving constantly and it has been meeting most milestones laid out in the TAP. PLF has risen from the levels of 65-68% in previous years to 72 % in 2012-13, which is above the target of 69.5% set in the TAP. The network yield per revenue kilometre has risen to Rs. 4.31 in the last financial year, against a TAP target of Rs. 3.53. The network yield per revenue kilometre has been maintained above Rs. 4 in the current year also. The OTP for the network for the year 2012-13 is 77%, which is below the TAP target of 85%. However, at the metros OTP has been maintained above 85%. The fleet utilisation has exceeded the TAP target for A319, A320 and A321 aircraft for the operating fleet.

AI’s revenue increased nearly 10% in the last financial year 2012-13 vis-à-vis 2011-12. The Company has recorded appreciable cost saving through freezing of recruitment in non-essential areas, saving in interest cost due to restructuring of working capital loans, reduction of booking agency commissions grounding of ageing fleet. The operating loss and cash loss have also declined significantly in the last financial year due to restructuring of routes. As a part of this exercise, AI has rationalized it’s loss making routes as a result of which more number of routes are meeting the Cash cost of operations.

The Company for the first time since merger has become EBIDTA positive in the year 2012-13.

The Engineering and Ground Handling divisions have been hived off as independent profit making divisions as AIESL and AIATSL, concerned staff of AI has been transferred to these units and MOUs have been executed with AI. This could be done only after a favourable judgement from the Supreme Court regarding the hiving off. With hiving of the MRO and ground handling units, there would be a significant improvement in the employee to aircraft ratio of AI which would come down from 1:249 to 1:139.

At the time of merger, Air India had a ageing fleet with an average age of 14-15 years. Today, with acquisition of almost 90 new aircraft, Air India has one of the youngest state of art technology fleet, with an average age of 5 years in the new fleet. The present fleet size is also comparable with some of the major global carriers. Air India is also one of the few airlines in the world to acquire the state of art B787 Dreamliner. Air India has placed an order of 27 B787, out of which so far 10 have been received by Air India and have been deployed on London, Frankfurt, Paris, Hong Kong, Seoul, Sydney/ Melbourne, Birmingham & Osaka Routes.

With regard to the issues of merger, the organisation has also taken major strides towards evolution of common work practices and policies. Majority of HR rules and policies regarding Passage, Medical, Housing, Allowances on posting/transfer have been harmonised & issued. A leaner organisational structure has also been approved by the Board. For the B787 Dreamliner, the cockpit crew and the cabin crew of both the erstwhile Companies, the Indian Airlines and Air India are now being trained together and are flying together to various international destinations.

To facilitate and monitor the asset monetisation process an Oversight Committee has been set up by Air India which has recommended E auction route to sell the properties. So far 5 properties have been identified for sale and Tender for sale has been finalised and uploaded. Eight floors of the Nariman Point building of Air India have been given out on rent and proposals for the routing out remaining floors are under consideration. We expect a gross annual rent of approximately Rs.80 cr. per annum from leasing of the Nariman Point building.

It also needs to be highlighted that the improvements in the operating performance has happened despite adverse factors which have affected its financial parameters. There has been a sharp fall in the value of Rupee, alongwith a rise in the price of ATF in the last year, vis-a-vis the values at which TAP was prepared. The rupee devaluation has upset the financial calculations of TAP, and has resulted in a hefty increase in the fuel bill and also in the payment of dollar denominated aircraft loans.

Besides the above factors, the equity infusion by the Govt. has neither been timely, nor adequate. There has been a shortfall in equity infusion to the tune of Rs. 3574 crores, leading to a liquidity crunch. To meet its working capital requirements, with the support of a GOI guarantee, Air India has had to seek short term working capital loans from the banks. This would result in additional interest burden to the Company.

Last but not the least, in order to improve Corporate Governance of AI and to bring specialised skills and expertise to the working of the national carrier, the Govt. has inducted five new independent Directors on the Air India Board. Shri R. Dholakia, Professor, IIM Ahmedabad, Shri Gurcharan Das, Ex-CEO & MD of Procter & Gamble, Dr. Prem Vrat, Founder Director, IIT Roorkee, Air Marshal (Retd) K.K.Nohwar, PVSM, VM and Smt. Renuka Ramnath, Ex CEO, ICICI Venture. The ultimate goal is to put the national carrier on the road to profitability so that the carrier can regain its pristine glory independent of Government support.”

The issues raised by the members at the Consultative Committee Meeting included improvement in the air connectivity between Delhi and Chandigarh, delay in the conversion of foreign pilot licence, identification of reasons for the loss to Air India, promotion of Pawan Hans for connectivity in remote areas, inappropriate behaviour of AI employees while reporting sick at a very short notice, direct connectivity of Bhubaneswar to China, Japan, Bangkok and Indonesia to promote Buddhist tourism, air connectivity between Jammu and Kargil and logistical problem at Indore airport. The officials of the Ministry, Airports Authority of India and Air India placed clarifications on the issues raised by the members of the Consultative Committee and assured them of looking into the matter appropriately.

The Members of Parliament who attended the meeting included Shri Avatar Singh, Shri Anandrao Vithova Adsul, Shri K. C. Tyagi, Shri R. P. Rudi, Shri Ashok Argal, Dr. Prasanna K Patasani, Shri Hasan Khan, Smt. Sumitra Mahajan, Shri Mithilesh Kumar, Shri Avinash Rai Khanna and Shri P. Goverdhan Reddy.

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