Aviation Budget '10 wishlist: Focus on air traffic control

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In the run-up to the Union Budget 2010, CNBC-TV18 puts the spotlight on the aviation sector. Ravi Nedungadi, Chief Financial Officer of Kingfisher Airlines and Dinesh Keskar of Boeing India discuss the outlook for the sector and its wishlist from the Finance Minister.

Here is a verbatim transcript of an exclusive interview with Ravi Nedungadi and Dinesh Keskar on CNBC-TV18. Also watch the accompanying video.

Q: You and most airlines have reported strong earnings in the third quarter. Do you think this growth is sustainable?

Nedungadi: I think certainly the worst seems to be behind in terms of the whole economic climate in which we had seen a sharp falling away of passenger traffic. Growth seems to be ticking in the economy. There is a lot more buoyancy and that is being reflected in more people travelling which is not to say however that the industry is completely out of its woes and in the sunlight because all the other constraints with infrastructure and high cost of operations continue, it is just that the passenger traffic seems to be headed northwards now.

Q: Do you see airlines getting back on the track of expansion? Are you getting signals of fleet expansion?

Keskar: Clearly airlines in India have purchased airplanes, as you know we created a record a few years ago and then we kind of subsequently suffered after that with those losses which we had talked about earlier. But for Boeing, we do have about 85 airplanes on order in India, some of them are the 787 Dreamliners for Air India and Jet Airways and also 737s for SpiceJet and JetLite-all these will continue to be delivered. So there is a substantial backlog in India which will take care of this modest growth that is occurring in Indian market. I don't think they need to revise that expansion plan right away but when they see the trend developing in the next two to three quarters, I am sure they may further decide to add more capacity. But right now, I think it's a good strategy to maintain the plan and go with the steady course and reap the benefits of the current environment.

Q: Passenger traffic is looking up. Also, loads and yields have improved, oil prices are relatively steady...in the near term do you expect capacities to rationalise even further to meet demand?

Nedungadi: A lot is dependent on the resolution that the industry has during the last 12-18 months. I think all players have rationalised the capacity that is created and there has been contraction of the seats to reflect more accurately the state of the market and the demand. We are certainly hopeful that everybody retains a rational approach to capacity addition and that should be good for the industry because that will mean that the growing traffic will be seeing increased seat factor in the short term and then maybe year out there can be a steady enhancement of seats on offer.

Q: Long understanding demand is there from the industry but do you think the government will take any of those up in the interest of the financial health of the sector-what are you expecting from the Budget 2010?

Keskar: First of all let me tell you the kind of expansion that you saw which was un-precedented in Indian skies could not have happened without the support from the government of India. I just flew from Delhi to Mumbai yesterday, and I am going to go back this afternoon-clearly the circling is a thing of the past. We do not see as much problem of congestion. We are seeing a number of flights are stabilising, the infrastructure is getting better. This, of course will continue to get better-things are improving world over, but certainly in India it is getting better at a faster pace.

The government should be focused on the air traffic control, the airports, the modernisation of airports. It should be made sure that what the airport authority of India is doing is on track. I feel that the only issue that the airlines bring it up every time I talk to them is aviation turbine fuel (ATF) taxes and they have been talking about this declared goods status for ATF. Of course it is the government's call what will they do. But my feeling is that if we keep the capacity and demand in match and do not create this suicidal fare wars we have a real good chance for this industry to continue the trend that we just started last quarter which is to make money and be profitable.

Q: Do you expect that to happen-particularly the long standing demand of declared good status for aviation turbine fuel?

Nedungadi: I think the industry will continue to urge the government to look at a couple of issues like this. Certainly the ATF issue is ranked high because it has really put our variable cost of operations very high. I think there are number of steps that can be taken which does not require any major legislative action but which can speed up through-put of passengers to the airport, can speed take off and landing at the airports and thereby save on fuel.

Overall, the industry is crying out for capital. Unfortunately all the regulatory restrictions that are there on foreign ownership-the sectoral cap, the ban on foreign airlines having an investment in domestic aviation company-all of these limit the capability of the industry to raise much needed capital and re-capital itself.

Q: And for that capital, do you expect the government to open up some sectoral caps?

Nedungadi: I think we would certainly be making the case forcefully to the government as an industry and he hope they will understand but the need is there. From the government's own carrier Air India is bleeding so much looking for capital. As far as the private carriers are concerned we need to find the money somewhere and it is best that we can access international capital.