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New Delhi, June 29, 2009
The eagerness of cash-starved Air India (AI) to augment its fleet with 111 new aircraft at a whopping cost of Rs 44,000 crore is not considered an astute move at a time when the aviation industry has been hurt by huge losses due to the global meltdown.
With no immediate plan to reschedule aircraft acquisitions and a debatable leasing policy, AI will find it hard to come out unscathed.
The combined fleet strength of AI and Indian Airlines (IA), which were merged in 2007, currently stands at 112.
AI hopes to take delivery of the new aircraft by 2014, which includes 68 Boeings and 43 Airbus (A-320 family). Some of these have already landed.
Of the 111 new aircraft, lowcost national carrier Air India Express will receive 18 Boeing 737-800, while 50 others, including Dreamliner B- 787 (already delayed by Boeing), would be utilised by AI for its international operations. The remaining 43 new aircraft from Airbus would fly on the domestic circuit.
Why are the civil aviation ministry and the AI management reluctant to reschedule the aircraft delivery despite the downturn? It is worth noting that many private airlines have deferred plans to enhance their fleet strength.
For instance, Jet Airways has postponed taking delivery of aircraft by a year and shelved its expansion plan for now. Kingfisher Airlines, too, has opted for a planned capacity reduction.
Sanat Kaul, formerly India’s representative at International Civil Aviation Organisation (ICAO) and ex-AI board member, said, “It was not at all sensible to place an order for so many aircraft. There is no budgetary provision for this and the money will have to be raised through international loans of about Rs 50,000 crore”.
“A new fleet cannot automatically resuscitate the national carrier and there are no hopes of return on this investment,” he added.
Bharat Kumar Raut, the president of the Federation of NACIL (the company consequent to the AI-IA merger) employees, has demanded a detailed investigation into AI’s decision to purchase 111 aircraft which, he said, “defied logic”. He has questioned the “aircraft selections” as well.
Air Corporation Employees Union president J.B. Kadyan, in a letter to the prime minister on June 23 has made serious allegations regarding the purchase of the new aircraft. The letter claimed that the original plan was to purchase 24 new aircraft for AI and 43 for the erstwhile IA. The plan was, however, changed and within 24 weeks AI firmed up an order for 111 aircraft, he alleged.
The ministry and AI board ignored the fact that even though the airline’s annual turnover is Rs 7,000 crore, it has placed orders worth more than Rs 35,000 crore. The yearly capital repayment and interest alone would come to Rs 6,000 crore, he cautioned.
The airline’s spokesperson Jitendra Bhargava, however, justified the proposed purchase.
“There was a need to take advantage of the robust market and expand our fleet. No aircraft acquisition has taken place in Air India for a long time.
The old aircraft had to be replaced. It was about survival,” he said.
Civil Aviation Minister Praful Patel said rescheduling aircraft delivery is no solution. “This is capital expenditure. Also, when Air India gets new aircraft it can always get into a ‘sale and lease back arrangement’,” he said.
Airline officials, on the contrary, feel there is need to take a relook at the ‘sale and lease back’ idea. The Federation of NACIL employees said “the disastrous aircraft leasing policy must be investigated”. Why did AI accept the expensive lease agreements for low yield aircraft, which remained under-utilised? Or, why were AI’s aircraft grounded during the period causing loss to the exchequer? An airline official revealed that some time back
AI had leased 15 aircraft – of which five B-777 and three A-310 had to be grounded due to unavailability of pilots. Today, two B- 777 aircraft are still grounded.
It is learnt that the official carrier had entered into a sale and lease back agreement for eight A-320, three B-747 and four A-310 aircraft during 2007-08 to tide over the acute cash shortage and to finance working capital.
The sale and lease back transaction means that an aircraft is sold to a lessor or financial institution in lieu of an upfront amount, with an agreement to pay a fixed rental. At the end of the lease term (70 months), the aircraft is returned to the lessor.
“When the passenger numbers are low, there was no need to retain these aircraft, especially when these were old and new ones had started arriving,” said an airline official.
The real need was to sell the older aircraft to remove overcapacity on non-profitable routes, he said. The entire process was hurried through to meet the March 31, 2007-08 deadline to book profits, he added.
The above story appeared in Business Today .I had sent my comments to the above story.My comments are displayed on website of BT .The same are reproduced herebelow :
Posted by: J S BROCA (jsbroca@yahoo.com )
NEWDELHI | June 30, 2009 | 12:02 IST
In spite of criticism of the big deal of AI,and not withstanding objections from various bodies/associations/unions,it is felt that the decision taken by AI is justified as its aim seems to be prepared to face the competitive challenges from other airlines,once the global meltdown is over and the economy starts looking up.
Once the economy is on the upswing mode,budgetary allocations can be requested for based on realistic data and assessment of the situation.This is the right time to invest in such valuable assets to justify AI’s long term viability and survival.
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Air India in the news….
In spite of criticism of the big deal of AI,and not withstanding objections from various bodies/associations/unions,it is felt that the decision taken by AI is justified as its aim seems to be prepared to face the competitive challenges from other airlines,once the global meltdown is over and the economy starts looking up.