For a change, Deccan Aviation Ltd has reported an improvement in operating performance. Its loss, both at the earnings before interest, taxes, depreciation, amortization (Ebitda), lease rentals and profit before tax levels (PBT), has reduced considerably.

In the January-March quarter, Ebitda and lease rental losses were as high as 21.5% of operating revenues. At the PBT level, losses were as high as 48.5% of revenues. In the June quarter, losses reduced to 8.3% at the Ebitda and lease rental level and 34% at the PBT level.

Ebitda and lease rental losses were lower even in absolute terms, at Rs42 crore last quarter, against a loss of Rs94 crore in the March quarter. It’s important to note that the January-March quarter is normally a much better period for air carriers, and in that context the improvement in Deccan’s performance is surprising. Jet Airways India Ltd, for instance, saw its June quarter Ebitda and lease rental costs halving over the March quarter, as revenues fell 9% sequentially. Analysts say that Deccan revenues, which were 15% higher compared with the March quarter, benefited from fleet expansion. But this doesn’t account for the reduction in losses. On the contrary, the introduction of new aircraft and new routes should lead to higher losses. One explanation for the better performance could be gains on account of foreign exchange (forex) fluctuations. Lease rentals, which involve forex payments, fell by nearly 400 basis points as a percentage of sales.

Another area in which Deccan seems to have benefited from the appreciating rupee is aircraft/engine repairs and maintenance, which reduced by 150 basis points sequentially.

Even interest costs came down substantially compared with the March quarter. But apart from forex gains, the company also cut direct operating expenses significantly. Some analysts say that Deccan could well be on the road to recovery, now that it’s also raised fares on most sectors. While the impact of the fare hikes may not get reflected this quarter, because it is a lean period for airline companies, the October-December quarter results are expected to benefit from the fare hike. Analysts, however, say that stripped of the gains from forex fluctuations, the company should continue to be in losses for some time to come.

The Reserve Bank of India has come out with a Profile of Banks, a compendium of financial data on banks in India. Some of the ratios make interesting reading. As expected, the foreign banks have the highest average return on assets at 2.27% in 2006-07 compared with 0.94% for nationalized banks, 0.86% for the State Bank Group and 1.03% for “other scheduled commercial banks." What’s more, RoA (return on assets) went up for foreign banks in 2007, from 2.08% in the previous year, while it went down for all the other categories.

How do the foreign banks manage it? Simply put, they have the lowest average cost of funds and the highest average return on advances after deducting cost of funds. It’s rather surprising that their cost of funds is so low, given their sparse branch network. One would have expected that the public sector banks, with their large savings deposits, would have the lowest cost of funds. But that isn’t so and their average cost of funds in 2006-07 was 4.03% compared with 4.81% for nationalized banks, 4.92% for the State Bank Group and a very high 5.16% for the “other scheduled commercial banks," which refers to private banks.

Also surprising is the fact that wages as a percentage of total expenses are rather high for foreign banks, at 20.06% in 2006-07. That’s not much lower than the 21.01% for the State Bank group and higher than the 17.89% for nationalized banks, while the percentage is a very low 10.93% for private banks. The difference between the foreign banks and the public sector banks is that while the latter give peanuts to a large workforce, the foreign banks pay their limited number of employees very well.

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