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Government fails to address woes of aviation sector: Airlines

The Indian aviation industry will require funding of up to 35,000 crore till 2022-2023 as profitability may take a hit due to sharp fall in revenues and higher fixed costs, ICRA earlier this week

The government's proposals for privatising more airports and freeing up more airspace for civilian flights disappointed the aviation industry in the absence of any relief measures for cash-strapped airlines that have been grounded for over a month and a half due to the covid-induced lockdown.

"Now we can almost certainly say two or three airlines may not survive the current crisis," said a senior airline official, with a no-frills carrier, who requested anonymity.

"What has been announced is simply a case of rearranging the deck chairs on the Titanic, along with perhaps shortening the queueing time for the buffet, while the gaping hole from the iceberg continues to take in water," the official said, adding that the reforms announced were 'business as usual' steps.

The finance minister Nirmala Sitharaman on Saturday announced reforms to kickstart the civil aviation industry which have been grounded due to the lockdown initiated to control the pandemic.

These included optimal utilization of country's aerospace which would result in shortening of routes, lower fuel costs apart from lower duration for flights.

The government also said that it will put up six airports for bidding under public-private partnership (PPP) model during the third round of airport privatization process.

Private players will make an additional investments to the tune of 13,000 crore in 12 airports that were awarded to them earlier under the previous rounds of airport privatisation processes, while state-owned Airports Authority of India (AAI) will receive 2,300 crore down payment from airport privatisation processes.

Meanwhile, the government also said that it hopes that India becomes a hub for maintenance, repair and overhaul (MRO) units after GST (Goods and Service Tax) rate associated with it was reduced from 18% to 5% by GST council in March which also facilitated provisions for claiming input tax credit.

"What airlines needed for survival are direct cash infusion to pay salaries for the period of government-ordered grounding, government-backed credit lines or loans to help airlines get back on their feet and sustain losses while demand recovers and waiver of all statutory dues for six months to allow airlines to rebuild their balance sheet," said another senior airline official, under condition of anonymity.

"What the sector actually got from the finance minister today are some old announcements repackaged as fresh reforms," the official said adding that Indian airlines are staring at dire strait situation with high costs and no income at the moment.

The Indian aviation industry will require funding of up to 35,000 crore till 2022-2023 as profitability may take a hit due to sharp fall in revenues and higher fixed costs, credit rating agency, ICRA earlier this week.

The Indian airline industry is currently grounded since 25 March due to a government imposed lockdown to contain covid-19. As a result, Indian carriers are estimated to report a 44% decline in revenue in 2020-21, as compared to the previous year, while the industry's net debt may rise to 46,500 crore by 2021-22.

Giving a separate estimate, aviation consultancy firm CAPA India had earlier in May said that Indian airlines, excluding market leader IndiGo, will need to raise a minimum of $2.5 billion to survive the grounding due to the lockdown imposed to contain covid-19 pandemic.

"MROs, and more PPP projects for airports and flexible use of airspace have been on government agenda for sometime. We may expect better implementation and execution," said Kapil Kaul, South Asia CEO of CAPA-Centre for Aviation.

"Overall, I had no expectations for any direct relief and this is not surprising. There is no relief likely (from the government) and medium to long term downsizing of the aviation industry is inevitable unless promoters are able to recapitalise significantly," Kaul added.

Meanwhile, industry experts indicate that the government would have to go back to the drawing board for privatizing airports under the PPP model as a lot has changed in terms of passenger traffic and demand in the past few months due to the outspread of covid-19.

"For this initiative to be successful in upcoming rounds, it would be critical to go back to the drawing board on a number of aspects and tailor the structure and timing with respect to the potential ‘new normal’ in the sector as well as private sector interest and appetite at this time," said Peeyush Naidu, Partner, Deloitte India.

On Saturday, when the finance minister Nirmala Sitharaman was asked if the government will consider making cash infusions or bail out packages for airlines, the minister replied saying that if any such announcements were being considered, these will be revealed at a later stage. Sitharaman didn't elaborate further.

"We do need maxium relief for airlines as that is the first point in the aviation sector's functioning. The minister has said that she will come back to it in terms of relief measures," said Jagannarayan Padmanabhan, practise leader and director, transport and logistic, at CRISIL Limited.

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