Crisis hits India: Airlines seek $1bn bailout
Times of India
BANGALORE, Oct 12: The global credit meltdown has hit home, and how. India's beleaguered airline sector has become the first industry to seek an official bailout from the government. The Federation of Indian Airlines (FIA) has asked for a $1 billion interest-free loan from the government to tide over the current crisis in addition to many other fiscal sops and easing of regulatory measures.
FIA, whose members include Air India, Go Airlines, IndigGo, Jet Airways, Kingfisher Airlines, Paramount Airways and Spicejet, also wants a moratorium of three years on the repayment of the loan.
A fiercely competitive market, slowing passenger traffic, rising costs and the current liquidity crunch has brought the industry to a stage where it feels that if a bailout package is not on the cards then it would need to substantially downsize.
Simply put, many an airline will be grounded which doesn't sound implausible considering that the $6-billion (Rs 30,000-crore) industry is expecting losses to mount to $2 billion (Rs 10,000 crore) this year.
When asked if Kingfisher Airlines had approached the government for a bailout package and for help till the company was able to raise money, Vijay Mallya, chairman of the company, said: "It was part of the presentation made to PM by FIA."
In a presentation made to the Prime Ministers Office, the FIA has asked for the following:
1. Reduction in aviation turbine fuel (ATF) price to global levels. This is to be brought about by eliminating excise duty of 8.24% and custom duty of 5.14% on ATF by putting ATF under the category of declared goods thereby limiting state sales-tax at 4% and by reducing the base ATF prices to bring it in line with international levels. For the last measure the government might need to consider a subsidy.
2. Reduction in landing and navigation charges. Specifically, the industry wants a temporary relief of 50% on landing, terminal navigation and route navigation charges for domestic operations for the next two years. Also, that there should be no further increase and creation of new charges at airports like user development fee (UDF), introduction of Common User Terminal Equipment (CUTE), increase in rentals.
3. Alteration in route-disbursal guidelines.
4. Self-handling to optimize the cost structure and quality of service.
Indian carriers' argument is that there is precedent for such a bailout both in India and abroad. After 9/11, the US airline industry was given $5 billion in cash and another $10 billion in loan guarantees. In 1999, the Indian telecom industry was allowed to migrate from annual fee structure to a revenue sharing arrangement when telcos started defaulting.
Most Indian carriers have been trying to raise money the past few months. Mallya said recently that he wanted to raise $400 million (Rs 2000 crore). With the global credit situation worsening by the day, it looks unlikely that any of the carriers will be able to raise funds in a hurry or on their terms.