T Ballantyne/R Prasad
India's hard pressed domestics are facing a double challenge to their shaky balance sheets: the renewed threat of a Tata Industries local startup and massive hikes in airport landing charges.
The Tata group had earlier plans for a joint venture with Singapore Airlines, backed by an investment of Rs 24,000 million (US$606 million). These plans were scuttled, however, in the face of government policy banning foreign airlines to own equity in Indian carriers.
But the big industrial conglomerate is now seeking the go-ahead for a revised, wholly Indian-owned Tata Airlines. Tata has asked the government for a 'no-objection certificate', a document which would allow it to begin acquiring aircraft. Aircraft numbers would rise from seven jets to 18 over five years, with a total investment of Rs 14,750 million (US$372 million). The airline would operate to 12 destinations, rising to 21 by the end of the second year.
Tata Airlines would have an equity base of around US$175 million, with the Tata group holding 60 per cent and the rest being sold to local financial institutions.
The industrial group is remaining coy about its prospective technical partners but SIA is likely to be involved. India's aviation policy allows technical tie-ups between foreign and domestic airlines.
Probir Sen, chairman and managing director of state-owned domestic Indian Airlines, says his carrier is not afraid of competition and thinks there is room for three carriers. Sen warns, however, that any new airlines would have to operate on a level playing field.
India's existing domestics have also been stunned by the Airports Authority of India's move to raise airport charges by 22.5 per cent from February. Landing, parking, airport terminal and navigational charges, as well as the air travel tax, are all set to increase.
The AAI was still awaiting government approval for the price rise at presstime, although industry officials say it is unlikely to be refused.
Most private operators have profit margins below 5 per cent. A sharp increase in their costs would severely hit their viability.
The higher charges would increase Indian Airlines' annual bill for these fees from US$52 million to some US$63 million. A spokesman concedes that the new fees would place the carrier under strain. 'There's no choice left but to go for a fare hike and pass on the increase to customers.'
Industry consternation at the higher fees is widespread. The chief financial controller of Sahara India Airlines, U KBose, describes the move as 'astonishing'. A spokesman for Jet Airways adds: 'At a time when all the airlines are reeling, the addition in cost will be devastating. On one hand, the government is trying to bring the cost structure down and on the other it will be eroding any benefits'.
Source: Airline Business
