Indian airlines, powered by an improving economy and steady passenger traffic, are expected to fare better this fiscal than in the previous two, the Centre for Asia Pacific Aviation, or Capa, says in its latest mid-year assessment of the sector.

The aviation consultancy has raised its expectations of cumulative profits for Indian airlines and predicted further consolidation in the sector.

“We had previously forecast that private Indian airlines would report profits of $250-300 million (Rs1,170-1,404 crore) in the current FY2010/11 (fiscal 2010-11). Our latest assessment is that the result could be higher than this earlier estimate," Capa says in its report titled Indian Aviation 2010: Mid-Year Outlook. The report was released on Friday.

Photo: Ramesh Pathania / Mint

Indian carriers had a collective loss of $2 billion in fiscal 2008 and 2009, forcing them to defer aircraft deliveries and lease out wide-body planes, but some are now gradually expanding. In fiscal 2010, India’s top three airlines—Jet Airways (India) Ltd, Kingfisher Airlines Ltd and Air India—had combined net losses of at least $1.5 billion, according to industry estimates.

Of this, the state-run Air India, run by National Aviation Co. of India Ltd, alone had a loss of about $1 billion.

Capa expects Air India will narrow its losses to $650-700 million this fiscal, and expects most other Indian airlines to post profits.

Passenger traffic for airlines rose 22% in May and 26% in April over the corresponding year-ago months, data from the Directorate General of Civil Aviation show.

In fiscal 2010, net loss for Jet Airways widened to Rs467.64 crore from Rs402.34 crore the previous year, and for Kingfisher Airlines to Rs1,647.22 crore from Rs2,139.65 crore earlier. SpiceJet Ltd was the only listed carrier to post profit, at Rs61.4 crore against a loss of Rs352.5 crore in 2008-09.

In June, media baron Kalanithi Maran acquired a 37.75% stake in the low-fare SpiceJet and has to make an open offer to buy another 20% in the airline under Indian law.

Capa says consolidation of Indian carriers would be further accelerated and Maran would be a central player in this process.

“We expect that Sun TV (headed by Maran) will look for further opportunities in the sector and there could be another one or two transactions during the current financial year," it said.

The previous such acquisition in the sector was Kingfisher’s purchase of Air Deccan in 2007.

Capa expects Indian airlines to also start ordering aircraft for fleet expansion. “IndiGo is looking to acquire up to 150 aircraft, SpiceJet 47 aircraft, and Air India is planning to lease 10 A330s as well as several A320s and ATRs. Some of these orders may even be announced at Farnborough (air show in the UK) later this month," it says.

The debts of India’s biggest airlines, however, remain a concern. “The total debt across these three carriers (Jet, Kingfisher, Air India) is approximately $13.5 billion, with an annual interest burden well in excess of $1 billion... Outstanding amounts payable to vendors such as oil companies and airports are in addition to this," it says.

According to the Capa report, the low equity base of these airlines makes raising additional capital a challenge. The three carriers need a further $10-12 billion over the next two to three years to finance scheduled aircraft deliveries, it says.