India's airlines in call for more government assistance

Singapore
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India's cash-strapped airlines have won limited concessions from the government to help them through their current difficulties, but calls for much greater assistance appear to be falling on deaf ears.

Indian airlines have struggled in recent months amid rising costs and falling demand, following several years of strong growth. All are operating in the red and for some, cash is running out.

Several months ago the government set up a committee to explore ways to help the industry and is trying to put pressure on state governments to cut taxes, which make India one of the most costly places to buy aviation fuel.

The government also recently announced that the country's airlines are being given more time to pay their overdue fuel bills, although it came with a promise there will be no mass layoffs of employees. But the government also indicated it is unlikely to provide more significant assistance, which the country's airlines continue to press for.

India's airlines as of October collectively owed around $600 million to state-owned oil companies, more than $400 million of which is owed by the three largest airline groups, Air India, Jet Airways and Kingfisher Airlines.

The Ministry of Civil Aviation recently agreed during a meeting with airlines and other government departments that carriers will be given nearly six months to pay their overdue bills in monthly instalments. In addition, a 90-day credit period will now be given to airlines for payment of future fuel bills, up from 60 days.

But it came with a catch, as the ministry announced that "in view of the support extended to the airline industry by the government and the oil PSUs [public sector undertakings], the airlines were asked to refrain from any retrenchment of staff".

In October privately owned Jet Airways announced that it was laying off 1,900 employees or 15% of its workforce. It later dropped the layoff plan following opposition from politicians.

Jet is in a better financial position than some of its peers but chairman Naresh Goyal continues to seek concessions from the government through tax cuts or other financial incentives.

Kingfisher is also seeking a change in regulations to allow it to sell 25% to foreign concerns. Government rules currently bar foreign airlines from holding stakes in Indian carriers but Kingfisher's chairman, Vijay Mallya, has called for this to change.

"I have requested government to allow foreign airlines to acquire up to 25% in Indian carriers as I believe aviation should be treated as per international norms and other industry sectors where strategic investors can invest," says Mallya. "I have received several expressions of interest from foreign airlines."

Many analysts believe it is unlikely the government will change the rules any time soon, however. As a result Kingfisher and other airlines are taking steps to boost cost-cutting efforts.

Kingfisher and Jet recently agreed a wide-ranging alliance and both have since announced plans to cut the number of aircraft in their fleets. They have also frozen expansion plans and Kingfisher has shelved its foray into the international market, leaving it with a single international service to London Heathrow.

State-run Air India is meanwhile seeking financial aid in the form of a "soft loan" of Rs20 billion ($406 million) as well as an increase in its equity base (see p30). This is the one airline financial aid request the government has indicated it will provide.

But IATA believes more needs to be done in India to help struggling airlines through the current downturn - and more quickly.

"To help reverse the state of the Indian air transport sector, we need a comprehensive policy approach The most urgent is to address taxation, which is crippling the industry," says director general Giovanni Bisignani. "I am an India optimist, but my biggest concern is speed. The crisis is highlighting that India's decision making is too slow."