Mumbai: India’s cash-starved airlines have urged the government to set up a $2 billion (Rs9,760 crore) airline stabilization fund and temporarily slash landing, terminal and navigation charges by half.
The Federation of Indian Airlines (FIA), an industry lobby, said in a representation last week to the civil aviation ministry that domestic airlines must be allowed to avail three-five year interest-free loans from the fund based on their number of seats deployed.
The need for such a package, it said, was justified because of the “exceptional circumstances caused by external factors”.
Industry experts have projected India’s airlines to make a combined loss of $2 billion in the fiscal year ending March, weighed by intense competition, high jet fuel costs and the decline in the passenger traffic as a result of the economic slowdown. “This is a practice used in the past by different countries in exceptional cases,” FIA said in its draft paper to the government titled Restructuring and support package for Indian aviation. “An example is the Air Transportation Safety and Systems Stabilization Act implemented in September 2001 by USA.”
Under the US’ stabilization Act, airlines were given access to Federal credit instruments worth a total $10 billion, in addition to a $5 billion compensation to cover direct losses from the terror attacks of 11 September 2001 in New York.
FIA, in its draft paper, also cited the US’ Troubled Asset Relief Programme (TARP) set up to purchase assets and equity from financial institutions to strengthen the financial sector. “The 26/11 terror attacks in Mumbai and the economic slowdown have brought the airline industry in India into an exceptional difficult situation,” FIA said in the concept note. Mint has reviewed a copy of this note.
The International Air Transport Association (Iata) has projected a cumulative loss of $1.5 billion for Indian carriers in fiscal 2009, and said this would be the largest losses for the sector outside the US.
“Iata has asked the government to take speedy steps to ensure that the dream of liberalization does not turn into a nightmare,” Mumbai-based brokerage Ghalla Bansali Stock Brokers Pvt. Ltd said in a January note to clients. “The Indian carriers are likely to account for $1 in every $3 of losses in the global airline industry this year. It is a staggering amount for a country that accounts for only 2% of the world air traffic.”
In a report dated 4 February, consulting firm Centre for Asia Pacific Aviation (Capa), said: “The (Indian aviation) industry cannot afford to have another set of massive losses in next fiscal, as it would mean all the stakeholders are supporting a very bad business case.”
Capa added that while the aviation market would recover in the next three-four quarters, India’s airlines, already weighed down by huge losses and debts, may not be in a position to take advantage post-2010. “Indian carriers need to turnaround in 2009 as this is extremely vital for the entire value chain of air transport in India,” it said.
FIA, as part of its plea, also asked for a temporary 50% relief from airport charges, saying the current rates are excessive compared with that in neighbouring countries.
It argued against any increases in rates and introduction of new charges at airports such as user development fee, common infrastructure fee and increase in rentals.
“During the period of record high fuel prices, the states were in a position to generate ‘windfall revenues’ by applying the ad valorem principle. This ‘windfall revenue’ in the financial year 2009 can be estimated to be around $170 million, taking a crude oil price of $40 per barrel prevalent in the current market conditions as a baseline,” FIA said, referring to tax charges on jet fuel sale.