Mumbai: Rashtriya Lok Dal (RJD) leader Ajit Singh, who is being tipped to become the civil aviation minister, will have his hands full dealing with multiple challenges the state-owned carrier and the rest of the airline industry is confronting as the sector prepares to enter 2012 under the weight of mounting debt and losses.

In line: Rashtriya Lok Dal leader Ajit Singh is tipped to become the new civil aviation minister. By Hindustan Times

The Congress party’s Vayalar Ravi, minister for overseas Indian affairs, had assumed additional charge of the civil aviation ministry on 19 January, taking over from Praful Patel of the Nationalist Congress Party, who held the post for six years. Both the RJD and the NCP are partners of the Congress in the ruling United Progressive Alliance.

“I cannot offer any comments at this point of time," Singh said, while admitting the industry is grappling with challenges. Local carriers are expected to post a combined loss of 10,000 crore largely because of high jet fuel costs and a slowing economy, according to industry estimates.

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RJD leader Ajit Singh is expected to become India’s new civil aviation minister. Mint’s P.R. Sanjai tells us about the many challenges the next minister will face

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Experts have pointed to the risks associated with a change at the policy helm at this juncture as the government considers allowing foreign airlines to acquire up to a 26% stake in domestic carriers.

“Frequent changes in leadership, in the absence of a structured framework, are always fraught with risks," said Kapil Kaul, chief executive officer, South Asia, at consultancy Centre for Asia Pacific Aviation (Capa). “The sector is currently without a long-term strategic framework and direction. We haven’t made any meaningful reforms in the aviation sector since 2008. Changes in leadership have meant a change in perspectives or policies and the industry is unable to deal with this uncertainty."

“The industry is in a mess with bleeding airlines, high-cost airports and skyrocketing jet fuel prices amid a slowing economy. India is the only country where its airlines lose money when air travel is growing at 20% year-on-year," said an executive at a private airline. “Instead of ensuring continuity, the government is more unsettling the sector." The official spoke on condition that neither he nor his firm be named.

State-run Air India is in the process of a debt restructuring exercise. The national flag carrier has a total debt of 43,777 crore, of which 18,000 crore is being recast, largely by public sector banks. Air India has delayed employee salaries and allowances due to a severe cash crunch.

Rival private carrier Kingfisher Airlines Ltd was forced to cancel 50 flights a day after accumulating huge losses and a debt of 7500 crore. The Vijay Mallya-owned firm owes huge sums to airport operators, fuel vendors and service tax authorities, who had frozen the airline’s account due to non-payment of taxes. The exact amounts are not known.

The distressed airline is likely to benefit if the government permits foreign carriers to invest in local firms.

Singh cannot be just a minister for Air India, or any private carrier, experts say. Rather, he will face the daunting challenge of providing infrastructure to airline companies that fly nearly 450 planes together.

Besides, the country’s plans to develop and modernize airports in 35 cities other than the four metros has hit an air pocket even as local firms continue to buy more planes. Even the modernization programme of two metro airports, in Chennai and Kolkata, is incomplete.

Bharat Mahadevan, who until recently was regional manager for north-east Asia at Jet Airways (India) Ltd, said frequent changes would mean the continuity of reforms is broken. He is currently writing a book on the Indian aviation sector.

High fuel costs has been a sore point with the aviation industry. For Kingfisher Airlines and Jet Airways, fuel cost as a percentage of revenue stood at 53% and 48%, respectively, in the September quarter, while it was 63% for SpiceJet Ltd, a low-fare carrier.

G.R. Gopinath, who started India’s first budget carrier in Air Deccan (that was later acquired by Kingfisher Airlines) said the average tax on jet fuel in India at 24% is the world’s second highest, after Bangladesh’s 27%.

The recent increase in crude oil prices and depreciation of rupee against the dollar have made the cost on fuel around half of airlines’ total cost, from two-fifths of the total cost a year earlier, Gopinath said.

He suggested that the government categorize jet fuel as capital goods, which will fix taxes on it at 4%.

The Indian government needs to develop policies that are in the best interest of the public and the country and not just to protect Air India, said Nawal Taneja, a professor emeritus at the Ohio State University, who also serves as an adviser to airlines and governments worldwide.