India's aviation industry has built a reputation for being an endless pit of lost investment over the past 77 years, with more than 50 airlines having collapsed since the country's independence.
In 2024, the insolvency plan of the Wadia group-promoted Go First will be tracked and so will the revival of Jet Airways, which hasn’t resumed operations even after a rescue plan.
Last month, a joint offer by SpiceJet’s chairman and managing director Ajay Singh and Busy Bee Airways, and another by United Arab Emirates-based aviation company Sky One were submitted for Go First.
However, experts in India are more optimistic about the revival of Jet Airways than Go First even though the former has been stuck in the bankruptcy courts since 2019.
But given that India is one of the largest aviation markets in the world, why is it so difficult for the country's airlines to remain financially stable and even thrive?
Why do airlines struggle in India?
The simple answer is high taxes, soaring jet fuel prices, and a highly price-sensitive passenger market. Aircraft fuel accounted for 40 percent of expenses of IndiGo, India's largest airline by market share.
Experts pointed out that Indian aviation has some of the highest costs and lowest yields (fare per km) in the world.
The dependence of Indian airlines on the aircraft sale-leaseback model to generate cash and prop up balance sheets is also unhealthy, according to experts. Indian airlines pay about Rs 10,000 crore annually to overseas lessors. Leasing costs can vary due to currency exchange rate fluctuations.
Other expenses include charges for facilities such as landing, route navigation, and parking paid to airport operators.
Globally, low-cost carriers make money by flying to secondary airports and avoid selling inventory on Global Distribution Systems or via travel agents, focusing purely on direct selling via their websites. This system does not exist in India.
Why did Go First and Jet Airways collapse?
Jet Airways started operating in 1993 and collapsed in 2019 under the burden of debt after operating as one of India’s top private airlines for years.
The airline's creditors' claims were Rs 30,558 crore, including Rs 10,224 crore owed to banks and other lenders and Rs 17,922 crore of operational credit.
The Jalan-Kalrock consortium took over the airline in 2020. Although the consortium has expressed its intent to start operating the airline, it has been at loggerheads with the committee of creditors since 2021 over the infusion of funds.
Go First, on the other hand, filed for voluntary insolvency resolution in May 2023, claiming it was forced to ground half of its fleet due to faulty Pratt & Whitney engines. Go First owes Rs 6,521 crore to lenders and its committee of creditors had been deliberating liquidation just a few months ago.
Why is it difficult to revive an airline in India?
Once an airline in India is taken to the National Company Law Tribunal by lenders seeking to recover their dues, finding a buyer is very difficult, experts said.
According to RK Bansal, CEO of asset reconstruction company Edelweiss ARC, Indian airlines don't own many assets and don't offer potential buyers much value. For potential buyers to invest capital to pay off an airline's debt, the carrier must own its fleet, which can be an asset.
Aviation analyst Lokesh Sharma told Moneycontrol that when an airline collapses in India, its reputation takes a hit, making it even harder for the airline to revive.
"Only Jet Airways and Kingfisher have reputable brand recognition among most collapsed airlines in India," Sharma said.
Is there hope for Jet Airways and Go First?
Historically and globally, the revival of airlines is rare, although there are exceptions. Mexico re-launched former state airline Mexicana de Aviacion in December and plans to add 10 planes in 2024. Founded in 1921, this was Mexico’s biggest airline and flagship carrier before ceasing operations in August 2010.
In the US, ExpressJet Airlines is gearing up for a relaunch in the second half of 2024 under new ownership. The airline suspended operations in 2020 and resumed flights but filed for bankruptcy protection in 2022 after the COVID-19 pandemic.
What’s the growth opportunity in India?
Indian aviation is one of the fastest growing global markets, with aviation consulting firm CAPA India estimating the number of domestic passengers at 155 million by March 2024. This amounts to growth of about 15 percent from a year earlier.
Civil aviation minister Jyotiraditya Scindia said India will have 220 airports by 2025 from 150 currently. He also said the Airports Authority of India and the private sector will invest Rs 1 lakh crore in the next 2-3 years in the aviation sector.
Indian carriers are also expected to have an order book for 2,000 planes by March 2025, with long-term rapid growth for domestic and international air traffic.
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