Mumbai: Star Aviation Pvt. Ltd, an aspiring regional carrier promoted by Dubai-based Emirates Trading Agency, or ETA Star Group, is planning to retrench most of its employees amid speculation over talks with several firms for a possible sell-off and even closure of the company.
In an interview with Mint on Saturday, T.V. Dorairaj, chief executive at Star Aviation, confirmed that his airline will lay off a majority of its staff and may start hiring again when the airline is ready for a commercial launch.
“Originally, we were planning to drop the idea of starting commercial operations. But now we plan to start services by the end of May or early June. We have signed agreements of getting planes for operations,” Dorairaj said. “We may start rehiring (the staff) when we are ready.”
Star Aviation, which employs 140, got its licence to be India’s first regional airline in 2007. MDLR Airlines Pvt. Ltd, the only other operating carrier with a similar licence, suspended operations on 1 October.
Though quite a few airlines, including ZAV Airways Pvt. Ltd, Jagson Airlines Ltd and King Air Pvt. Ltd were licensed to fly as regional carriers, none of them could launch due to high jet fuel prices and the economic slowdown that gripped the country in the wake of the collapse of US investment bank Lehman Brothers Holdings Inc. in September 2008.
The ministry of civil aviation’s vision of connecting smaller towns and cities by air gave rise to the concept of regional carriers. Regional airlines are not allowed to fly crowded routes connecting large cities.
Calls made to Star Aviation’s office in Chennai were not answered while its website (www.flystaraviation.com) said the ticket booking section is under construction. “Star Aviation is all set to make a grand entry in the Indian skies shortly,” the website says, adding that it’s “promoted by Syed M. Salahuddin, a Dubai-based NRI (non-resident Indian) and managing director of the ETA Star Group”.
Star Aviation’s layoffs come at a time when the sector has started looking up after posting a $2 billion loss in the last fiscal due to excess capacity. According to data released by airline regulator Directorate General of Civil Aviation, the domestic airline passenger market expanded 7.5% in 2009 from the year earlier.
The business model still holds promise, said Kapil Kaul, chief executive (Indian subcontinent and Middle East) at the Centre for Asia Pacific Aviation, or Capa, an aviation consulting firm. “Star Aviation’s future will not change the Indian regional airline’s potential,” Kaul said.
Kaul’s firm is advising two aspiring regional carriers, one in the east and one in the south. “I see no reason for a regional carrier not to take off if it has the right business model and is adequately funded,” he said.
Anyone buying Star wouldn’t be getting much by way of assets, said a senior executive of an airline, who had conducted due diligence on Star Aviation for a possible acquisition. “Star Aviation has been on the block for some time now,” he said. “But the airline has no major assets, including aircraft.”
Dorairaj denied that his airline is in talks with any company for a sell-off. He said the airline has secured an extension of the initial no-objection certificate to operate as a regional carrier up to June.
According to the ministry of civil aviation website, the extension is valid up to 2 June. In other words, if Star Aviation is not able to start commercial operations by that date, the licence may get cancelled.
Though Dorairaj said its planes are ready, Star Aviation has not taken delivery of any planes from Empresa Brasileira de Aeronáutica SA, or Embraer.
On 21 May 2008, Embraer signed a contract for the sale of seven Embraer 170 jets to ETA Star Group with options for three more, and five purchase rights for any E-Jet model. The deal, at list price, is valued at $220.5 million and could rise to $472.5 million if all options and purchase rights are confirmed for the jets.
An email sent to Embraer for an update on this particular order did not elicit any response.