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Bailout or we stop flying, pvt airlines threaten govt

Last updated on: July 31, 2009 

Bailout or we stop flying, pvt airlines threaten govt

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In a show of solidarity, eight of India's cash-strapped private airlines in Mumbai on Friday decided not to operate domestic flights on August 18 demanding immediate an bailout package from the government and threatened to suspend their services indefinitely if this was not done urgently.

Under the banner of Federation of Indian Airlines, these airlines -- which fly more than 100,000 passengers a day -- said that to protest against the 'high prices of jet fuel and airport charges', the nation's crisis-ridden private airlines will suspend all their flights on August 18. No private airline will operate on that day.

"We have decided to halt countrywide operations on August 18 to highlight the urgency of the matter and the need for government intervention," Anil Baijal, the FIA secretary announced.

"With a great sense of disappointment, private member airlines are compelled not to continue their operations in the circumstances. Therefore they have decided not to operate their nationwide services on Aug 18.

"The idea is to highlight the urgency for government to intervene urgently," the Federation of Indian Airlines said after a meeting.


Image: Kingfisher chairman Vijay Mallya.
Photographs: Reuters
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However, state-run Air India, which is also a member of the FIA, has decided not to join the "boycott".

"Air India is not party to the boycott decision. The matter was not discussed in the FIA meeting so long as the Air India chairman was present. The decision was taken subsequent to his departure," an Air India spokesperson said.

Flanked by Kingfisher chairman Vijay Mallya and Jet Airways chairman Naresh Goyal, FIA secretary general Anil Baijal, told a press conference that "if adequate response is not received, member airlines will be compelled to suspend their services for an indefinite period."

Ironically, their protest decision came on a day when oil marketing companies hiked aviation turbine fuel (ATF) prices by Rs 620 per kilolitre effective from midnight on Friday.

The civil aviation ministry has for long being ruling out the possibility of any bailout package for the aviation industry, although the government is keen to help Air India, the national carrier, with such largesse.


Image: Jet Airways chairman Naresh Goel.
Photographs: Reuters
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India's airline industry has been in facing huge losses because of the global meltdown, dropping passenger count, high aviation turbine fuel prices and taxes, and a general recessionary trend that has affected the nation's economy.

The FIA said that private airlines have lost Rs 10,000 crore (Rs 100 billion) in the fiscal year 2008-09, and the losses could rise to as much as Rs 57,000 crore (Rs 570 billion) in the current year.

In such a grim scenario, airline bosses said that just like the bailout and stimulus packages that the government had extended to other industry sectors in the recent past, the aviation industry should also be bailed out by the government.

Vijay Mallya even went to the extent of saying that if the government does not pay heed to their just and rightful demands, private airlines in India will suspend their operations indefinitely.

Jet Airways' Naresh Goyal, however, said: "This is not a threat or an ultimatum; this is a request to draw the government's attention to the plight of the aviation industry. It is not that the government does not know about our plight. I am positive we will not have to stop operations on August 18 and something will work out," said.

But Vijay Mallya said the government could take it as a threat if it wanted to but private airlines have the right to air their grievances.


Image: An Air India aircraft at the Mumbai airport.
Photographs: Reuters
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"We are bleeding. Everybody is bleeding. Giving a helping hand to the airline industry is done all over the world. The operations are not sustainable any more and we have been asking for government's help for a long time now," Goyal said.

Mallya meanwhile said that airlines will refund the money for the passengers who have bookings for August 18. While all the domestic flights will be hit on August 18, Mallya said that the international flights will not be affected.

Even as this drama was being unfolded, the government increased the prices of ATF by Rs 620 per kilo litre effective Friday midnight.

"Aviation fuel prices in India are among the highest in the world," said Baijal, and this cost alone makes up more than 35 per cent of any airline's operational expenses.

The FIA said that the ATF taxes are unsustainable and the estimated airline levies stand at $250 million.


Image: Civil Aviation minister Praful Patel.
Photographs: Reuters
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"It is a well-considered decision of all members not to fly on August 18," FIA secretary general Anil Baijal said after the meeting. He said airlines are suffering because of falling traffic, high ATF prices and recent hike in airport charges.

Charges for airport services are set arbitrarily by operators, the FIA said.

Unprecedented liquidity crunch, high oil prices, widespread economic gloom, declining passenger traffic, skills shortage, and overcapacity are squeezing the life out of India's private airlines.

Also, as cost pressures mount and labour productivity remains low, airlines are finding it difficult to keep their heads above the water. These private airlines, despite their management skills, fewer employees per aircraft and low air fares are fighting for survival as global recession plunges the airline industry into gloom.

Last year, Jet Airways and Kingfisher had come in for a lot of flak and political pressure when they fired hundreds of employees citing mounting losses. However, they decided to reinstate the sacked employees when political parties threatened an ugly stir against the airlines.


Image: Inside an Air India Boeing.
Photographs: Retuers
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The government on Thursday said leading airlines in the country had suffered losses over Rs 2,444.837 crore (Rs 24.448 billion) during the 2007-08 fiscal.

With the losses steadily rising, various airlines have slowly but steadily been laying-off staff. Earlier, Kingfisher Airlines had warned its 6,000 employees of a delay in salary payment. The airline has asked its employees to be ready for delayed salaries. However, Mallya said on Friday that the salaries will be given by August 7.

Private sector bailout with taxpayer money

The idea of bailing out of private sector companies by the government using taxpayer money has been stoutly opposed in the past in India. The current demand of private airlines for a bailout package thus might take a while to go through.

But as Air India might get government aid to help bring it out of the financial mess it is in, private airlines too are seeking help to keep afloat.

The United Progressive Alliance government has in the last 8 months announced three stimulus packages, which included a drastic reduction in duties and cut in taxes. This has benefited many private sector companies and thus the private airlines are to an extent justified in asking for a bailout package in the form of lower taxes and lower airport charges.

However, industry observers say that the threat of the airline industry to stop operations altogether if a bailout is not given smacks of the formation of a cartel which is not good for the passengers.


Image: Mumbai airport.
Photographs: Reuters
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Faced with slump in the aviation sector and mounting government pressure to restructure, cash-strapped national carrier Air India is mulling cancelling delivery of six Boeing 777 long-haul aircraft.

Air India chairman and managing director Arvind Jadhav and Boeing India president Dinesh Keskar held a meeting in Mumbai on Friday at the Air India office to discuss the matter.

The national carrier, which is facing a severe cash crunch, had ordered 111 aircraft, including 68 from Boeing, at a total cost of over Rs 50,000 crore (Rs 500 billion) to augment its fleet.

The airline, which is estimated to suffer a loss of Rs 7,200 crore (Rs 72 billion) in 2008-09, has been over burdened by its working capital borrowings worth Rs 17,000 crore (Rs 170 billion). It has overdrafts from 15 banks. The carrier wants government to underwrite at least Rs 10,000 crore (Rs 100 billion) of this burden.


Image: Aircraft at the Mumbai airport.
Photographs: Reuters
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