Upgraded terminal at Bangalore airport inaugurated, airport renamed, exclusive pictures

by Devesh Agarwal

Bangalore's Bengaluru International Airport (BIA) was renamed to Kempegowda International Airport, Bengaluru (KIAB) at a glittering ceremony on Saturday by Karnataka state chief minister Siddaramaiah and Union civil aviation minister Ajit Singh, along with a battery of ministers, legislators, the Mayor of Bangalore, politicians, bureaucrats, the chairmen of the airport operating company Bengaluru International Airport Limited (BIAL), amongst others.

Upgraded terminal 1A at Kempegowda International Airport. The original portion is visible in the middle.

Along with the renaming, the upgraded passenger terminal, 1A, was inaugurated. The new terminal will be progressively introduced for passenger use starting from January 2014.

T1A, will almost double the floor space of the terminal, and is expected to cater to 20 million passengers. Mr. G.V. Krishna Reddy, the chairman of GVK Power and Infrastructure Ltd., the majority shareholder of BIAL, also indicated that the airport will now commence on planning for a new mega terminal 2, and a second runway that should see the airport build a capacity of up to 40 million passengers.

Upgraded terminal capabilities

The graphic below compares T1 with T1A. Comparisons aside, the new areas have a distinctly superior air. Almost like a five star hotel lobby.

The domestic portion on the west side of the terminal (right side of the picture) will commence operations first. The east side of the existing terminal which serves international traffic at present will remain for international traffic use which the area behind the existing immigration, customs and security will be built for international use.

Luxurious bathrooms await passengers in terminal 1A.

At a future date, not yet disclosed, but expected near March 2014, the new customs, immigration, and baggage reclaim hall will be completed, at which time the east portion of the existing terminal will be converted to domestic use, and the international operations will move to the new east hall (left side of the picture, under the new roof-canopy) and the extended pier will also be used.

In an environment first, the terminal building is LEED Gold certified for green energy use. 

Floor plans of Terminal 1A, Kempegowda international airport, Bangalore

Level 0, terminal 1A, Kempegowda international airport, Bangalore. Bus gates domestic, international baggage claim

Level 1, terminal 1A, domestic international contact stands, departures. Level 2 domestic close-up day hotel, lounges

Level 2, terminal 1A. Domestic lounges, international arrivals, immigration, extreme right Code F departures and lounge.

Lounges, day hotel, and food options

Now, there are reasons to get to the airport early. The domestic portion of the terminal will see a dramatic improvement in the lounges, with two of them opening up. Of significance to Citibank PremierMiles Mastercard holders, and other credit cards, one of the two lounges opening is by Plaza Premium. Overlooking the departure gates, the lounge is very much in the style of Cathay Pacific's The Wing lounge at Hong Kong airport.

Restaurants are upscale, and focussed towards local cuisine.

There is also a day hotel, located on the third level above domestic departures in the far west of the expanded terminal, offering bed-capsules for travellers wanting a quick rest and shower between flights or for passengers from slightly distant cities like Mysore, Tumkur, Salem, etc. The airport authorities are going to have to work out the modalities with the security agencies for international passengers to use the hotel, or early arrivals from close by cities like Mysore, Salem, etc.

Coming back to the lounge front, international premium passengers are doomed to suffer. The new wing while providing for new lounges, will expand lounge capacity by a small fraction over the existing Oberoi group operated lounge, was is forced to continue well past its contract period, supposed to end in October 2013. Oberoi did not get a contract to operate either of the two lounges, and naturally, their interest in operating the existing lounge is low. Despite the best efforts of BIAL staff, the Oberoi lounge provides a very sorry departing experience to the premium passengers.

Security check area shows a distinct five star look and feel of the new terminal.

Lounges are crucial to the passenger experience at hub airports. While the new international lounges are expected to be more luxurious than the existing, it remains to be seen whether these lounges will match up to the likes at Singapore Changi, Dubai, or even New Delhi IGI airports.

One of the two new lounges will be Plaza. Given its relatively small size, it is not clear whether credit card holders will be permitted entry. There is one lounge area being considered at level 2 of the east most gate (right side of floor plan photo) which is a Code F and can be used by an Airbus A380. Will Lufthansa use this area for creating a dedicated lounge? Let's see.

Photography at the terminal

Airplane photo buffs will be able to enjoy great views at the west end of the airport which should allow for a panoramic view of the apron. Head out near the new gate 1 any time before noon and click some photos. The best time of the year to take photos will be from September to April after which the sun will be north of the airport and many photos will be back-lit.

Photography from the terminal is permitted by the DGCA. You can read this article for more details and the relevant notifications which we suggest you keep a print out of.

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Video: Interview with Indian civil aviation minister Ajit Singh

Another interview more on promise, and less on substance.

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Japan 'bans' Air India's Dreamliners

Japanese government irritated by Air India's inefficiency

by Devesh Agarwal

About three weeks ago I wrote debunking the myth being created by the Air India management and their political bosses about the fuel efficient Boeing 787 Dreamliner aircraft being the saviour of the beleaguered national carrier. Read the Op-Ed piece here.

In June no less than the Indian civil aviation minister, Ajit Singh, announced that Air India would soon operate the Dreamliner to Japan. Very logical. The Japanese are the largest operators of the 787 Dreamliner in the world with both their major airlines, All Nippon Airways and Japan Airlines being the launch and second customer of this aircraft. Japan Airlines was the first airline to bring the Dreamliner to India on regular commercial service.

And yet, Air India is unable to fly its Dreamliners to either of its Japanese destinations of Tokyo or Osaka.

Why? you ask. Simple. The wonderfully efficient Air India has failed to provide the Japanese civil aviation authorities with information they required about the modifications carried out on its Dreamliners post the battery fiasco that grounded all Dreamliners globally. Failing to receive a response to their numerous reminders, the Japanese are refusing to give Air India permission to operate the Dreamliner till they receive the information.

Sources inside the airline have told media, so irritated are the Japanese with Air India's sloth and unresponsive attitude, they have stopped interacting with the airline and are instead routing their communications through India's civil aviation regulator, the DGCA, another bastion of speedy operations.

Quite obviously the airline has no comment.

But your comments are always welcome.

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787 Dreamliners alone cannot save an inefficient Air India

by Devesh Agarwal

Recent media reports blare the headline

The Boeing 787 Dreamliner, the latest acquisition of Air India, is likely to shore up the fortune of India's national carrier.

This is backed by the many advertisements portraying some of the top Indian CEOs, giving big thumbs up after travelling in the next generation flying machine of India’s national carrier.

Various media reports quote the Indian civil aviation minister Ajit Singh, on the planned expansion of Air India's network using the 787 Dreamliners. In a press release by the Indian Government, the minister spells out progress on the Dreamliner battery modification

The Minister for Civil Aviation , Shri Ajit Singh has said that out of six Dreamliners, two Dreamliners have already been modified for commercial operations and all 6 planes will be ready for operation by the end of this month.

Singh goes on to reveal a few financial performance parameters of the airline. In typical government fashion, the information reveals a small part of the story while concealing the essential. Reported is the increase in yield (revenue per passenger-kilometre) but hidden is crucial information like cost per passenger-kilometre, since revenue minus cost reveals the true performance of the airline, which the government will never report to the tax-payer whose money is being used to fund the airline.

Statistics aside, the main question here is: Why is the Indian minister for civil aviation making operational announcements about the airline? Globally it is the top management of the airline performing this task. Is Singh also assuming the duties of the Chairman and Managing Director of the Air India? Why is Ajit Singh also doing Rohit Nandan’s job? Should Singh not be concerned more about the abysmal performance of the DGCA in the sphere of safety regulation and the impending audit by ICAO?

Singh should let Nandan do his job, while he focusses on building a strong policy and robust regulatory structure for the benefit of the entire Indian aviation sector, and not just individual airlines.

These actions exemplify the daily and deep interference by the political and administrative class in the operations of ‘India’s National Carrier’, and how the airline's leadership, which is beholden to the political and bureaucratic establishment for their jobs, are side-lined.

As a result the airline leadership is rendered powerless, and relieved from any ownership of performance, and by extension absolved of responsibility for results.

In my humble opinion, this is akin to a criminal abandonment of one's duties and responsibilities.

Air India is losing thousands of crores each year and has racked up debts exceeding a mind blowing 53,400 crores ($8.9 billion) till date; and, and no one is held accountable!!!

Recently Air India was given a mammoth Rs. 30,000 crore bailout or Rs. one crore for each of its 30,000 employees in an over-bloated workforce. In comparison India's health department budget for last year was Rs. 28,000 crore. Surely India does not need a 'national airline' more than the health of its citizens.

The politicians appear to be the driving force of this "feel happy" message on the 787 to deflect from some horrid truths. The Indian public is being kept blissfully unaware, much of the airline's modern Boeing 777 fleet remains grounded due to a lack of spare parts; shocking considering most of the bailout money has already been spent. Read related story.

In another example of political interference killing the airline, in 2006, Air India was forced to buy the special purpose ultra-long range Boeing 777-200LR, to fulfil the pipe-dreams of non-stop Indian USA flights, of then civil aviation administration led by Praful Patel. Even as the Comptroller and Auditor General (CAG) questioned the purchase of the 777LR's itself, the configuration of aircraft shows the wasteful nature of "planning" at the airline.

Air India's 777-200LRs are configured with a pathetic 238 seats in 8/35/195 first, business, and economy class. In comparison, global airlines offer many more economy class seats, the type of passengers Air India most commonly flies. Emirates offers 10.7% more seats, Air Canada 17% more, even Qatar Airways, rated one of the most luxurious economy class in the world, offers 10.6% more economy class seats.

The airline has been trying to sell these LRs since 2009, but this is a special use aircraft with very few airlines as takers; and within this limited market, no airline in its right mind will buy such an uneconomically configured aircraft with so few seats. The advice of many an aviation expert for Air India to re-configure its LRs and increase seats, have fallen of deaf ears.

The airline is forced to fly this uneconomic configuration, and the political spin machine generates stories that the 777 is not a commercially viable aircraft. The sales performance of the 777 speaks for itself. The 777 is one of the most successful aircraft in history with over 1,400 orders and 1,105 deliveries till date. The new Boeing 777X project is expected to replace the venerable 747 Jumbo Jet in the next decade. The two largest 777 operators in the world are Emirates and Singapore Airlines, essentially India's neighbours.

If blowing up precious tax-payer rupees and not repairing, improving and deploying, the existing fleet is a criminal waste, what would you call the misinformation and misdirection?

Another quote by the minister that needs to be placed in perspective

"The Boeing 787 has the optimal size and range to allow Air India to not only operate its current routes more profitably, but also to open up new markets giving Air India a true first mover advantage,"

Where were these grand plans in July 2012 Mr. Minister?

Qatar Airways had made a lot of publicity in London that they would be the first carrier to operate the Dreamliner in to the prestigious city. Their deliveries were additionally delayed. Air India, which constantly complains of competition from the gulf carriers, received its Dreamliners months ahead of Qatar Airways, and could have destroyed the million dollar campaign of Qatar by operating the 787 to London, its largest international destination. The lack of a logical answer as to why Air India chose not to, is so compelling, one is forced to ask, is this a result of "lobbying" or some quid-pro-quo?

Instead of obtaining first mover advantage at one of the world's most premium destinations, Air India operated the Dreamliner, on routes like Dubai, which is filled with low yielding low cost labour traffic. Instead of London, its largest international destination, Air India operated 787s to Frankfurt, where it constantly loses to global network behemoths like Lufthansa. When I asked why, there was no logical answer, but sources in the airline told me, the airline was just ordered to fly the Frankfurt route, at the behest of "someone in power".

Air India continues to remain a wife with 1,000 husbands - interfered with, used and abused, by all of its stakeholders, with the exception of the tax-payer whose money is being burnt like the fuel in jet engines.

The 787 Dreamliner is a good and fuel efficient aircraft that will benefit Air India, if used properly; but any person with a modicum of common sense will realise just even this next generation fuel efficient aircraft alone cannot save an inefficiently and negligently run airline.

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Have your say: Question of the week: Will the Jet Etihad deal fructify? Will Jet survive?

by Devesh Agarwal

We welcome your feedback and comments on the Jet-Etihad deal.

Without a doubt the humongous increase in seat capacity offered to the Abu Dhabi government by India has some quid-pro-qua links to the Jetihad deal. There is also talk that the bilaterals seat increase was to pacify the UAE government after their telecom company allegedly lost over $1 billion in the recent 2G scam, and get foreign investment flowing in to India from that country.

Regardless of the reasons, the new proposed bilateral air services agreement (ASA) has come under severe flak from many political quarters. At the focal point of attacks is the Prime Minister, who had given his approval to the Group of Ministers (GoM) comprising P. Chidambaram (Finance), Anand Sharma (Commerce), Salman Khurshid (External Affairs) and Ajit Singh (Civil Aviation), to proceed and conclude the ASA.

Dr. Manmohan Singh is regarded as an honourable man, but his reputation has taken a hit following the 2G telecom scam and Coalgate, where national resources like spectrum and coal were doled out to political supports for cheap. A weak Congress, facing a multitude of elections, is now desperately trying to protect the image of the Prime Minister and the memorandum of understanding (MoU) signed with the UAE government on the ASA is now being questioned. To help weather the political story, give cover to the Prime Minister, and justify the deal, a note from the civil aviation ministry is being prepared for perusal and overall approval of the MoU, the Cabinet.

The suave and politically connected Naresh Goyal is reportedly pacing the corridors of power, and doing all he can to keep the Jetihad deal alive.

On the side, news reports indicate Etihad is waiting for the outcome of the cabinet meeting, and the decision on the MoU. Indirectly, it has been reported, that if it does not get the massive increase in traffic rights, Etihad make walk away from the deal.

Jet is facing a debt of over 12,000 Crore ($2 billion), higher than even Kingfisher Airlines, and its very survival is at stake.

Do you think the Jetihad deal will fructify? Under what circumstances? If the deal does not fructify, will the baniya Naresh Goyal be able to prevent Jet Airways experiencing the same fate as Kingfisher Airlines?

Share your thoughts and views via a comment.

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Analysis: Etihad post strong results; government fears over Jetihad overblown

by Vinay Bhaskara

Abu Dhabi based full service carrier Etihad Airways announced yesterday that it had achieved record revenue growth for the second quarter and first half of 2013. For Q2 2013, passenger revenues grew a robust 8% to $921 million, while passenger revenues for the first half of 2013 hit $1.8 billion, up 13% from $1.6 billion in 2012.

Revenue generated by its code share and equity alliance partners leapt 25% to $184 million in Q2 and was responsible for 20% of Etihad’s revenue for the first half. Passenger traffic as measured in revenue passenger miles (RPMs) and capacity as measured by available seat miles (ASMs) each grew 13% year over year in Q2; the figures were 15% and 12% respectively for the first half of 2013. Etihad added 11 new aircraft to the fleet over the preceding 12 month period (bringing its fleet up to 78 frames), and added new services to Amsterdam, Belgrade, Sao Paulo, and Washington DC (added at the end of March) in Q2.

Clearly, Etihad has achieved a strong pattern of growth in the shadow of its behemoth rivals of the MEB3 +1 (Middle East Big 3 plus One) carriers; Dubai based Emirates Airlines, Doha based Qatar Airways, and Istanbul based Turkish Airlines. A key component of this growth is driven by Etihad’s equity investments.

In addition to Etihad’s proposed 24% investment into Jet Airways creating the so-called Jetihad partnership, Etihad holds a 29% share of airberlin, 40% of Air Seychelles, 10% of Virgin Australia, and 3% of Aer Lingus. Etihad recently secured Australian regulatory approval to increase its equity stake in Virgin Australia from 10% to 19%.  It also announced that it had signed an Initial Memorandum of Understanding (MoU) with the Serbian government to discuss potentially investing in Serbian national carrier JatAirways.

As per the Etihad press release, CEO James Hogan:

…said a significant achievement in Q2 was the improved contribution of the Etihad Airways equity alliance partners, in particular Germany’s airberlin, which has become the largest code share contributor. This reflects increased connectivity between the integrated networks of the two airlines.

And the Etihad results illustrate the case that can be made for the Jetihad partnership. In recent weeks, the Jetihad deal has hit a series of setbacks due to government reticence over allowing control over Jet Airways’ strategy to fall into foreign hands. A report from CNN IBN stated that

Jet's plan to relocate operations and core functions to Abu Dhabi has raised eyebrows as the proposed plan is not consistent with Indian norms, sources said. The co-operative board of the company will have control with 19 foreign nationals nominated by Etihad, sources added, and the government fears losing operation control of the domestic airline Jet.

Civil Aviation Minister Ajit Singh is reportedly sending a note to the Prime Minister’s Office asking Jet and Etihad to rework their deal to allay government concerns that the recent seat sharing agreement in the re-worked Abu Dhabi – India bilateral air service agreement (ASA).

Clearly the Jetihad partnership will benefit Etihad extensively, giving it a solid grip on westbound international traffic from India. And the seat sharing deal indeed does favor Jetihad over other full service carriers serving Abu Dhabi. But the ASA with Dubai is similarly tilted in favor of Emirates Airlines, and Jetihad will only serve to create a strong competitor to Emirates, who has increasingly monopolized westbound international traffic from India.

As to the question of whether Indian norms are being flouted by the addition of foreign nationals… maybe. But is that all together a bad thing? Operating under Indian norms, Jet Airways had fallen into a rut of sustained financial losses and network stagnation. In contrast, Etihad has created robust partnerships with its equity partners and helped re-vitalize them; Aer Lingus is reporting excellent financial results despite recession in Europe and residual demand weakness in its home country of Ireland.

Foreign blood may very well be just what Jet Airways needs to return it to profitability and stability domestically – the expertise of Etihad in running a profitable airline will be invaluable for Jet given the latter’s inconsistent result. And from a practical perspective, Etihad will likely do little to change Jet’s domestic strategy given its lack of expertise in the market. There is even room for some organic international expansion under the umbrella of Etihad; for example Aer Lingus recently announced an intercontinental expansion from its hub in Dublin to San Francisco and Toronto for 2014. Similar opportunities may present themselves for Jet Airways heading eastbound from the new integrated terminal at Mumbai.

I would like to remind readers, this is my view. Your comments, as usual, are requested and welcome.

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Vested interests shaping government policy helped AirAsia partner Tatas too

by Devesh Agarwal

Image courtesy Wikipedia

Aviation insiders have known for many years what AirAsia boss Tony Fernandes dared publicly state the day before yesterday, after his meeting with civil aviation minister Ajit Singh. Vested interests have shaped, nay, distorted Indian civil aviation policy.

One of the more shameful rules of Indian civil aviation is the policy of allowing Indian carriers to operate international flights only after they have been in operation for five years, and have a fleet of at least 20 aircraft.

The worst aspect of this rule is that it applies only to Indian carriers. So while even newly formed airlines from our neighbours like Mihin Lanka, flyDubai, etc., could fly to India, a perfectly capable IndiGo or SpiceJet were forced to watch their competitors establish themselves, while they themselves had to sit idly by. Even today GoAir is unable to operate international flights since its fleet is smaller than the mandated 20 aircraft, forcing the airline to lobby and seek an exemption from the rule.

Image © Devesh Agarwal. All rights reserved.

The blind ambition to operate international flights before it completed the five year requirement, was one of the driving reasons for Vijay Mallya promoted Kingfisher Airline's disastrous acquisition of the loss-laden Air Deccan, which is now acknowledged as a major reason for the ultimate demise of the liquor baron's airline.

We completely agree with Fernandes that this bizarre rule has held back Indian airlines while other airlines in the region have formed and grown to become large stable businesses, thus causing a loss to the nation.

Fernandes appeared to confirm insider information when he used the name "Naresh", most likely referring to Naresh Goyal, the politically super-connected boss of Jet Airways, who was the "vested interest" behind this bizarre policy decision.

Fernandes though, should remember history and use caution when blaming "vested interests" for distorting government policy. Back in 2006, his partners in AirAsia India, the Tatas, actively lobbied the finance departing to apply a different yard-stick from the then national auto policy, and made their fledgling Indica car qualify as a "small car" and obtain lower excise duty benefits which it was otherwise not be entitled to, while its competitors would.

A 2006 report explains

While the Auto Policy defines a small car as being up to 3.8-metre long and the 6-digit excise notification in the official tariff book places a cap of 1,000 cc on the engine capacity for a car to qualify as 'small', the Budget made cars up to 4 metre in length and having an engine capacity of 1,200 cc (petrol) and 1500 cc (diesel) eligible for the lower, 16% excise slab.

This means, had the finance minister stuck to the existing definition, petrol models such as Hyundai Santro and Maruti WagonR would not have become eligible for lower excise. Under this definition, the upcoming diesel variants of Swift and Getz will also become eligible for lower excise since the engine capacity cap for diesel versions has been placed at 1,500 cc. But, just a few weeks after the budget was passed, two major automobile companies have begun lobbying for extending these concessions further.

Officials confirmed that two companies, including the Ratan Tata-led Tata Motors, have sought further relaxation.

Fernandes' outburst is understandably,  also vested. After all, he is responsible to the shareholders of his business for delivering results. One way for his new venture AirAsia India to quickly grow, would be to operate internationally.

Today AirAsia cannot carry passengers all the way from south east Asia to the middle-east on its narrow body A320s, since the distance it too great. At the same time. some of the routes would not have enough traffic to fill the wide-body A330s of AirAsia X. But if AirAsia India flies overseas, it can be fed by its sisters AirAsia, and Thai AirAsia who would bring passengers to the Indian hubs and transfer them on their Indian sister along with Indian passengers for the onward journey to the middle-east.

Is this a case of the pot calling the kettle black? Or is Tony Fernandes genuinely interested in universal change to fair play rules? Share your thoughts via a comment.

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Video: A rather tame interview of civil aviation minister Ajit Singh

The Media India Group recently conducted an interview with Indian civil aviation minister Ajit Singh.

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Guest Post: India scraps Aircraft Acquisition Committee

by Ashwin Jadhav

The aircraft acquisition process for airlines in India

The Indian government has scrapped its aircraft acquisition committee (AAC), meaning domestic airlines will find it easier to import aircraft. After allowing 49% FDI (foreign direct investment) by foreign airlines, in the Indian airline sector, the government last week moved a step closer to liberalizing the civil aviation space by abolishing the AAC, a nodal agency which until now cleared requests by airlines and private individuals seeking to import aircraft.

The AAC individually scrutinized each request to import an aircraft into the country, often delaying the process. Axing the scheme, which was only introduced a year ago, will help to "liberalize the market," India's Civil Aviation Minister, Ajit Singh has said.

Domestic airlines will still have to report to the Directorate general of Civil Aviation (DGCA) to register an aircraft before it enters the country, however, the softened rules should support the country's ambition to grow its air travel industry.

Streamlining the process

For most airlines, the aircraft acquisition process begins with an initial valuation agreement with the manufacturer. Following this process, the airline conducts a need assessment, cost analysis and market research aligned with their short-term and long-term strategies.

These processes can be completed in any order, depending on constraints, and are finalized by identification of the candidate aircraft. Usually 2-5 aircraft are short-listed and further narrowed down based on factors like purchase price and aircraft performance (fuel consumption, range, payload, ceiling, weight/balance, capacity, etc.).

Once the aircraft to be purchased is confirmed, a proposal has to be submitted to the aircraft acquisition committee (AAC). The committee was formed in October 2012 “to consider, examine and make recommendations on all proposals for permitting import or acquisition of aircraft for various purposes”, but had increasingly become more involved in commercial and operational decisions.

An objection or delay in the AAC verdict meant that the entire process had to be initiated from inception. This would include rewording agreements, reassessing the market performance and reconsidering the number of aircraft to be purchased. In the recent past, airlines had started objecting to the delays in the meetings of AAC to clear their aircraft orders, saying this adversely affected their commercial decisions to acquire and fly new planes and, hence, profitability.


Approval by the committee would originate negotiations with the manufacturer, which would subsequently be followed by a purchase agreement, legal verification and final delivery of the aircraft. As airlines in India do not purchase their aircraft directly, a leasing agency would be involved, taking over the contract at this stage. The airline would sign a dry or wet leaseback agreement with the leasing company. Once the sale was final, the aircraft would become operational into the airline fleet.

A step forward

The abolishing of the ACC will result in streamlining of the entire aircraft acquisition process in India, a step that could potentially improve the financial health of airlines in India. After Thursday's move, airlines will only need the initial no-objection certificate from DGCA and an in-principle approval to import planes. "The in-principle nod is needed for meeting RBI norms that mandate some sort of government clearance before allowing a commercial entity to make payments to a foreign company," Ajit Singh added.

The impending Jet-Etihad deal and the soon-to-be-launched Air Asia India will now see more planes coming to Indian skies without any trouble from the ministry. Between December 2011 and March 2013, nine airlines that operate in India sought permission to import 97 planes and all were granted permission.
At present India has only one commercial aircraft for every 3.2 million population, compared with Philippines that has one for 9 lakh people, China for every 1.14 million and Brazil, one for every 6 lakh citizens.

Ashwin Jadhav is an aerospace engineer by profession and works in the Flight Operations and Air Traffic Management domain.

Editor's note: As usual comments are welcome. I am sure Ashwin will welcome your feedback.

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Air India to receive another Rs. 5000 Cr. equity infusion in fiscal 2013~14

by Devesh Agarwal

As per the budget for fiscal 2013~14, presented yesterday in parliament, the Indian government has earmarked another Rs. 5,000 crore (about $900 million) for equity infusion into ailing national carrier Air India.

This is the second tranche of a nine year, Rs. 30,000 crore (about $ 5.5 billion) tax-payer funded equity infusion, which is part of a turn-around plan for the carrier. The current budget initially provided Rs. 4,000 crore, which has been subsequently increased to Rs. 6,000 crore in the revised estimates. In fiscal 2011~12 the carrier was given Rs. 1,200 core as extra-budgetary support. The budget documents also claim that Air India will additionally generate Rs. 1,318.60 crore through internal and extra budgetary resources in 2013~14.

Civil aviation minister Ajit Singh informed the Indian parliament via a written reply that Air India has turned EBITDA (Earnings Before Interest, Depreciation, Taxes and Amortization) positive of Rs. 48.75 crore between April and December 2012. A drop in the ocean of red, as the carrier had annual losses of Rs 7,853 crore in fiscal 2011~12, has debt exceeding $10 billion, and current operating losses of Rs. 2,554.02 crore for the period from April to December 2012. (Air India has operating revenues of Rs. 11,400.44 crore and operating expenses of Rs. 13,954.47 crore).

The Economic Survey for 2012-13, tabled in Parliament yesterday, claimed that Air India is expected to achieve positive EBITDA in the current fiscal, and the carrier has registered performance improvement such as on-time performance at 85 per cent, passenger load factor at 70.9 per cent and yield at Rs. 4.31 per revenue passenger kilometre during the April~October 2012 period.

Share your thoughts via a comment.

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Opinion: Approving AirAsia-Tata airline will derail goals of FDI in aviation policy

by Devesh Agarwal

The announcement that AirAsia is joining hands with the Tatas and Bhatias with the intention to start a new airline in India will put the a significant policy dilemma in front of the Government of India related to foreign direct investment (FDI) in civil aviation by foreign airlines, and might just land-up derailing the goals of the fledging policy.

While the policy is not explicit, so as to avoid any problems before the Competition Commission of India (CCI), the policy is framed to help the weak balance sheets of existing India airlines, and more importantly the banks, many of them government owned, who have already loaned vast sums of money to this sector.

When the cabinet approved the policy on September 14, 2012, the press statement said

"......there has been a need to consider financing options available for private airlines in the country, for their operations and service upgradation, and to enable them to compete with other global carriers. Denial of access to foreign capital could result in the collapse of many of our domestic airlines, creating a systemic risk for financial institutions, and a vital gap in the country’s infrastructure"

Two weeks after the policy was announced, India's civil aviation minister, Ajit Singh, told the Business Standard

“We are not giving licences for greenfield airlines. As of now, FDI (foreign direct investment) in aviation can come only through existing airlines."

Indian civil aviation minister Ajit Singh.

The statements and policy are logical.

Thanks to years of regressive policies of the Indian government, and the ludicrous taxation structure, especially on aviation fuel, Indian carriers carriers' balance sheets are awash with red ink.

Air India has over $10 billion (over Rs. 55,000 Crore) in liabilities, while Kingfisher Airlines is in for over $3 billion ($16,000 Crore).

Even the country's more "financially stable" carriers like Jet Airways and SpiceJet has are stress situations with skewed financial ratios, and growth strongly hampered by a lack of capital.

With much of the money being siphoned in to Air India, and the financial implosion of Kingfisher, Indian financial institutions neither have the funds, nor the appetite, to lend any more to the airline sector. FDI is needed.

However, if foreign airlines are allowed to set-up new greenfield airlines, they need not risk investing in the existing airlines. They can start fresh, with no liabilities, benefit from not making or suffering past mistakes of operations or policy, bring in expertise and massive financial strength, and blow away the fledgling domestic sector.

We have already seen this happen in the international sector, where the government in its infinite "wisdom" required Indian carriers to operate for five years before they could fly international, while allowing even newly formed foreign carriers to operate to India, thus giving foreign carriers time to establish themselves with nil to minimum competition. Today, Indian carriers are restricted to the sidelines, while the unofficial national carrier of India is not Air India, but Emirates; with India contributing over 11% of the airline's total capacity. No small feat, considering Emirates is the world's third largest airline by seat capacity.

India's largest private carrier, Jet Airways, is negotiating with Abu Dhabi based Etihad to sell them a 24% stake for about $300 million (Rs.1,600 Crore), which is a premium considering Jet's total market capitalisation (mcap) is just Rs.4,575 Crore. Just as a comparison, AirAsia Berhad mcap is Rs. 12,842 Crore.

Jet leads Indian companies with a sky-high debt to equity ratio of 84 times, almost 1,000% of the next company in the list, or 4,300% of the 1.95 of AirAsia). Its total debt is in excess of Rs 11,030 crore. Thanks to losses over the years, the company's reserves have depleted almost 50%, thus declining equity, and leading to the increase in the company's debt to equity ratio. The airline needs to raise equity capital by inviting FDI from foreign airlines.

Earlier this week, the Chairman of Etihad, Sheikh Hamed bin Zayed al-Nahyan, delayed the deal citing concerns on policy flip-flops by the government. How will Etihad view an approval to an "India AirAsia"?

That will have to be gauged in the time to come, but, for certain, allowing foreign airlines to set up greenfield airlines will have a negative impact on the attractiveness of existing airlines, and by extension the health of their debts, and the health of the Indian financial sector.

Even as an unabashed believer in capitalism, in my humble opinion, while an "India AirAsia" will lead to lower fares and more competition, ultimately it will be we tax-payers who will be left holding the proverbial bag as the government will be forced to bailout the banks.

Allow foreign carriers to set-up greenfield airlines, but after a period of time, may be three years, for now, get them to invest in Jet, IndiGo, SpiceJet, GoAir, and if the government ever comes to a logical sensibility, Air India.

I am advocating the same approach as of Mr. Ratan Tata, a leading member of the "Bombay Club" which over 20 years ago, proposed a similar go slow approach on liberalisation.

As usual, your thoughts, comments, feedback and counter-views are welcome.

The video below is a panel discussion on FDI in civil aviation, soon after the policy announcement, from NDTV. If you cannot see it on mobile or on the RSS feed, please visit the main Bangalore Aviation website.

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Scamster makes 389% profit margin selling official travel tickets to Members of Parliament

by Devesh Agarwal

A ticket bought for Rs. 17,270 was sold to the Rajya Sabha secretariat for Rs. 67,270, a 389% mark-up!!

We regularly hear either the Minister of Civil Aviation, Mr. Ajit Singh, or the Director General of Civil Aviation, Mr. Mishra, calling for airlines to curb their fares and not indulge in price gouging.

One has to wonder what will be their reaction to this news report by Saurabh Sinha in the Times of India. The Rajya Sabha (the upper house of the Indian parliament) secretariat was informed of a potential scam when a RS Member of Parliament (MP) found some extreme prices on his air ticket and lodged a formal complaint.

The secretariat paid Rs 99,292 for a one-way Delhi-Chennai flight on Jet Airways for Ashk Ali Tak, a Congress RS member from Rajasthan. A Chennai-Hyderabad ticket on Air India was bought for Rs 35,184. A Hyderabad-Bangalore journey on Jet and a Bangalore-Jaipur ticket on low cost IndiGo 'cost' Rs 67,270 and Rs 17,270, respectively.

The DGCA, on investigating with the various airlines, found

"Jet Airways said it got Rs 39,292 from the agent for the Delhi-Chennai ticket which was sold to the RS Secretariat by the latter for a whopping for Rs 99,292; and Rs 17,270 for the Hyderabad-Bangalore ticket that was 'bought' for Rs 67,270. AI said it got Rs 4,484 for the Chennai-Hyderabad ticket which was bought for Rs 35,184. IndiGo said it got Rs 8,910 for the Bangalore-Jaipur ticket that was bought for Rs 38,410,"

A 300% mark-up!!! on business class fares? All on the tax-payers' Rupees??

Why is the Government going to private ticket agents, when it has a fully owned and well functioning on-line travel agent (OTA) called Indian Railway Catering and Tourism Corporation (IRCTC), which also sells flight tickets?

And while we are on the question of fares, why is the RS MP flying Business Class on yours and my Rupees? That too at a time of the government raising prices and taxes to improve its collections?

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Indian Aviation Review 2012. Part 2: The airlines' analyses

by Vinay Bhaskara

As promised, here is the second part of Indian Aviation's 2012 review, with an airline by airline analysis of the events in 2012.

Air India

2012 was another banner year in Air India’s agonizingly slow death spiral. Whether it was yet more labor turmoil related to the still not completed merger with Indian Airlines, a botched Entry Into Service (EIS) for the Boeing 787 Dreamliner (though admittedly 2013 has not exactly been a banner year for the 787 thus far), or a will they/won’t they attempt at selling off a portion of the Boeing 777-200LR fleet, Air India once again set new records for mismanagement.

The 787 EIS, while botched, is still an incredibly positive step for Indian and global aviation. The 787 is currently plying select flights between Delhi and Tier 1 metros (Kolkata, Bangalore, Chennai, et. al) as well as international flights to Dubai, Frankfurt, and now Paris. Even with Air India’s relatively uncomfortable configuration (18J/238Y) and atrocious interiors, the 787 is still a step forward in terms of product quality (read our trip report and review here). And as the airline integrates more 787s into its fleet, hopefully its good onboard product (the meals in Economy are excellent) will become more recognized.

See our cabin photos and cabin video walk-through here.

Routes wise, the year was mostly maintenance of the status quo, though parts of the long haul network were temporarily dismantled during the pilot’s strike. Toronto – the loss leader of the long haul network might not be coming back, which is finally a sensible move from Air India’s route planning department. Air India has appeared to settle on Delhi T3 as its primary long haul hub, which is fine with as long as they stick to it.

The strike of course was a microcosm of the broader challenges facing Air India; over-entitled employees asking for even more benefits (some highly unrealistic) despite market leading compensation. But from a practical perspective, Air India needs to get the labour situation sorted out as soon as possible. There are several inefficiencies that arise from having two “airline(s) within an airline” and Air India can hardly afford to lose more money.

During the last third of 2012, the airline was goaded in to action by the Ministry of Civil Aviation, Mr. Ajit Singh. We have not been given financial statements for almost two years from now, but here’s a (not-so) bold prediction, while Air India lost thousands of crores in calendar year 2012, its losses will be lower than from the years before.

GoAir

On the whole, GoAir had a relatively quiet year, at least by the standards of Indian carriers. It added the 13th A320 to its fleet, and with only 7 more current generation aircraft coming, it is pursuing modest growth for the foreseeable future. On the routes front, it added Chennai to the network but was otherwise quiet. I wonder however at the order for 72 A320neos. It’s viability is heavily reliant on GoAir getting approval to fly international routes as well where there is less competition and more room for individual airlines to secure their own niches.

Of course the most important fact about GoAir is that they are profitable, as Bangalore Aviation exclusively revealed in an interview with GoAir CEO Georgio de Roni back in October. Ultimately, that is the only metric that matters in this industry, and the following quote from Mr. de Roni was music to the ears: “Yes, we have a more cautious approach to growth. We are exclusively targeting profitability and not really market share.”

IndiGo

With no publicly available financial and operational data available for IndiGo, it is hard to qualitatively evaluate the airline. However, the major trend was a decided shift towards international expansion. IndiGo as well pushed towards international flying, though with a slightly different strategy than SpiceJet.

After launching services from Mumbai and Delhi to Singapore/Bangkok in Southeast Asia (Mumbai-Singapore/Bangkok have since been terminated and replaced with Chennai/Hyderabad – Singapore) as well as to Dubai and Muscat, it instead focused its 2012 efforts on growing its operations on the heavily trafficked route(s) to Dubai, adding services from Chennai, Hyderabad, and Kochi. It also added Kathmandu to the network with service from Delhi.

However, there is some question as to the viability of IndiGo moving forward. Already, reports have emerged that IndiGo is not operationally profitable and that its finances are supported primarily by high revenue from sale-leaseback of its fleet of Airbus A320 aircraft. Notwithstanding a potential collapse in the sale-leaseback market for current generation A320s as next generation re-engined products enter the market; IndiGo will thus have to maintain its high rate of A320 deliveries to keep delivering profits. They currently have 68 orders for the current generation A320, as well as the (formerly) record-setting 180 A320neos on order. But the question for IndiGo becomes, how will they adequately utilize all of these new aircraft?

Already with just 62 A320s in the fleet, IndiGo has found it hard to find enough flying. Beyond capacity dumping on Metro routes, the list of routes in India that can handle A320s is pretty much saturated by LCCs already. International operations are pretty much IndiGo’s only venue at this point, with the Gulf being the largest market within easy range of the A320s. IndiGo can replicate much of Air India Express’ market to the Gulf, though the process of securing flying rights from the Indian government is sure to be a challenge. In our opinion, IndiGo thus made a strategic blunder in committing to too many mainline aircraft and not ordering a turboprop like the Q400 or ATR 72 for service to relatively untapped tertiary markets.

Jet Airways

The year for Jet Airways was more mixed. The airline restructured its operations and saw rapid fare growth in the second half of the year as Kingfisher fell apart. They also fully embraced the power of sale-leaseback and made some good product decisions including unification of their low fare brands, (long overdue) reconfiguration of the 777-300ER fleet, and replenishment of the regional fleet. The flip side of course, is that Jet Airways still lost money overall for the year, but there steps in the correct direction.


I am a big fan of the international network restructuring; the most notable changes being the elimination of Brussels-JFK, Chennai-Brussels, Delhi-Milan, and Mumbai-Johannesburg, as well as several cuts to regional international flights. In today’s high tax, high-fuel environment, it represents smart capacity management which is not exactly a strong suit for Indian carriers. The benefits have already been seen, as Jet’s recent quarterly results have shown a marked improvement in international yield and brought revenues more in line with costs.

The A330-300 was inducted at the end of 2012, and the choice of the A330-300 was a smart one. The aircraft has very low unit costs (cost/available seat kilometer) and is a good tool for routes that have a lot of visiting family/relatives (VFR) and leisure traffic in economy class, and limited premium traffic. Moreover, the low economy class unit costs are especially important considering the growing competition for economy class travel from MEB3+1 rivals like Emirates, Etihad, Qatar Airways, and Turkish Airlines, all of whom have very low seat mile costs.

Similarly, reconfiguring the 777-300ERs into a higher density configuration will drive down unit costs on the flights to London-Heathrow. The 10 abreast configuration is rather uncomfortable but it is a necessary evil in competing with the MEB3+1. Emirates also has 10 abreast seating in its 777-300ERs. However, Jet should have gone further and stripped the extremely heavy First Class product from its 777-300ERs, thereby allowing the aircraft to do nonstop India-US flights.

Adding the ATR 72-600s is a good move, whether for replacing the existing ATR 72-500s, or for growth to combat the steady expansion of SpiceJet’s Q400 operation and expand on less competitive regional routes. Either way, it offers improved technology and fuel burn over the ATR 72-500 and should help bolster the regional operations at Jet.

The move by Jet Airways to consolidate LCC operations under the JetKonnect brand was a good one, as it helped reduce (but not eliminate) the brand confusion surrounding Jet’s multiple brands and service levels. However, the actual integration process has been slow, and the brand clarity is still lacking. When Kingfisher fell apart, much of the Konnect capacity was quickly converted back to full service to help fill the premium capacity void so perhaps there is some merit to the idea in terms of product flexibility.

Sale leaseback helped bolster the finances for Jet, even leading to a profitable Q1 for fiscal year 2012-13. But in general, the financial performance left something to be desired. Hopefully 2013’s finances will show improvement for Jet.

Kingfisher Airlines

2012 was a horrific year for Kingfisher, with the airline getting itself grounded and its airline operating license not renewed.

The depths to which this once mighty airline has fallen was symbolised by the suicide by the wife of one of its many unpaid employees, citing financial troubles. All this while the junior Mallya was tweeting about cavorting with hordes of models in sunny sands.

The government is still awaiting a viable business plan from the promoters, which will see scores of vendors including airport operators, fuel companies, and employees getting paid.

We’d like to do due diligence to Kingfisher with a proper eulogy. However, we will wait to see if Vijay Mallya can pull a proverbial “rabbit” out of his hat and resurrect Kingfisher before we write that post. Stay tuned!

SpiceJet

As with Jet Airways, 2012 was a mixed year for SpiceJet. On the positive side, the carrier grew its regional Q400 operation by leaps and bounds with great success and launched and announced several international routes. However, once again SpiceJet struggled financially, posting one quarterly profit over the course of the calendar year. It also failed to secure funding for an expansion of its Q400 fleet which signals a degree of market skepticism over SpiceJet’s business plan.

The expansion of the Bombardier Dash 8-Q400 turboprop operation was a very beneficial step for SpiceJet. The Tier I Metro routes between Chennai, Delhi, Mumbai, Bengaluru, Kolkata, and Hyderabad are heavily saturated with low cost and full service competition, and even the routes between Tier I and Tier 2 Metros are starting to reach that tipping point in many cases. The best point of expansion thus becomes the tertiary and even quaternary destinations like Vijaywada and Pondicherry where SpiceJet tends to have a monopoly or at worst duopoly with a full service carrier. Initial loads and yields for the Q400 fleet were very strong, that too from the relatively weak market of Hyderabad. As the operation expanded, SpiceJet began to shift capacity towards stronger business markets like Bangalore, Chennai, and Delhi, and the Q400 operation continued to grow in scope and reach.

First SpiceJet Q400 leaves Toronto for India

The Q400 fleet has the benefit of operating under special rules from the Indian government including reduced fuel taxes as well as takeoff and landing charges (ostensibly to grow air service to regional airports), so the Q400 operation is certainly a strong performer in SpiceJet’s tepid overall finances. The full order of 15 Q400s is now complete, and while SpiceJet has options to purchase 15 more from Bombardier, unfortunately it cannot find financing for the next 15 deliveries, which it desperately needs to expand the regional operation.

Internationally, SpiceJet launched several new destinations and flights. It already operates to Dubai, Riyadh, Colombo, Male, Kabul, Kathmandu, and will launch services to Guangzhou in 2013. It was smart for SpiceJet to make its primary international base at Delhi, as this is the largest base of VFR and leisure origin and destination (O&D) travel most likely to use a LCC. Overall, international expansion is necessary for any of India’s LCCs to utilize their fleet given the saturation of domestic routes with enough demand to support 737-800 and A320 size aircraft, and the Indian LCCs have all committed to significant fleet growth.

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Opinion: Kingfisher Airlines' license suspension actually helps Vijay Mallya

On Saturday India's civil aviation minister Ajit Singh, announced that aviation regulator, the DGCA had suspended the operating permit of Kingfisher Airlines, after the carrier failed to respond to their show-cause notice.

With mountains of unpaid debts, the airline has been on life-support for some time now. Unpaid employees have been striking since October 1, resulting in a suspension of all flight operations by the Dr. Vijay Mallya promoted airline.

While many proclaimed their eulogies, the PR folks at the airline, called the suspension temporary

"We would like to clarify that this is not a cancellation but a temporary suspension which is valid only till such time that we submit a concrete and reliable revival plan to the satisfaction of DGCA."

The alcoholic beverages (alcobev) business in India is at the intersection of public relations, sexually aspirational marketing, board-room machinations, manoeuvring around the hundreds of contradicting laws, gratification and slush funds of administrators and politicians.

Call me a conspiracy theorist, but I refuse to accept that a man who made his billions in this tricky business, will just fold up his airline, risking his personal assets and those of the UB Group, which have been given as surety on the loans to the airline.

Going out on a limb, I suspect, this suspension may be one last, desperate move by team Mallya, to scare the stakeholders, employees, banks, vendors, and government, into saving the airline.

The striking employees who have been unpaid for seven months have been taking a hard line. With the management offering only one month salary, reconciliation meetings till now have proved futile. Ahead of their meeting with the management on Monday, the suspension suddenly gave the employees a preview of cold, hard reality. If the airline goes under, not only will they not get their unpaid salaries, but they will have to look for new jobs in a shrinking Indian aviation market.

The banks which are refusing to lend any more funds, demanding the Mallya bring in about $500 million (Rs. 2,500 Crore) to re-capitalise the airline, were given a preview of Kingfisher going under. Banks have collateral for only about 10% of their loan exposure. A lengthy, expensive, legal recovery process is not a desirable situation for them. Recovery proceedings may also bring to the surface undesirable information and questions, about potential political influence in these government owned banks granting loans to the airline.

The vendors, especially the airports, the fuel companies, and lessors, who will have to commence lengthy and expensive litigation to recover their dues if Kingfisher goes under. The mess will get further complicated due to cross litigation between the various vendors. For example the lessors who own the aircraft will have to pay the dues of airports before they can take away their aircraft.

The Government, by ordering the suspension or cancellation of Kingfisher's permit, has given Mallya the perfect escape route. He can now dump the entire problem in to the government's lap, saying "What can I do? I did my utmost to save the airline, but the government cancelled the permit. Now they must deal with the consequences."

The spin doctors are UB Group are masters in PR. We recently experienced how well they diverted the media's attention away from the Rs. 60 Cr. humanitarian loan extended by banks. Get a Kingfisher stewardess out in protest saying she is out on the streets, and all the TV news channels will cover it from head to toe. In no time, public opinion will be turned, that the government must be humane and take care of those poor unpaid employees who are now out on the streets.

Last, but not the least, is us passengers and tax payers. Thanks to capacity reductions, fares are already up 20% in the last few months, and over 50% compared to last year. With the Dussera festival this week, kicking off the peak travel season till mid January, and Kingfisher out of the picture, fares will rise to astronomical levels. There will be a public outcry and the government will be forced to defend the situation with the Kingfisher spin doctors saying "See, we tried to save the airline. The government closed us down. These fare increases are due to that."

The situation is being unfolded exactly how the King of Good Times wants it.

What are your thoughts on the suspension of Kingfisher's permit? On my conspirator theory? Your thoughts and comments are always welcome.

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India seeks Lufthansa help for Air India to join Star Alliance, again. Jet can join too.

At the Directors General of Civil Aviation conference being held in New Delhi, India's civil aviation minister, Mr. Ajit Singh said that his ministry would once again seek the help of German carrier Deutsche Lufthansa for Air India to enter (may be re-entry) the Star Alliance. In August, the world's largest grouping of airlines had rejected the national carrier's application to join the network.

The minister also offered a carrot saying, that the ministry was open to Air India and Jet Airways joining the alliance at the same time. The Star Alliance has already invited Jet Airways to become a member, but the private Indian carrier has not yet initiated formal steps to becoming a member.

The Economic Times reports and quotes the minister

Civil Aviation minister told media that Lufthansa, which is the founding member of Star Alliance, was given a lot of benefits to ensure that Air India joins the grouping.

"I believe a lot of facilities were given to the airline (Lufthansa) so that it would mentor Air India to join Star Alliance. They were given a lot of flights, it was made almost open skies for them. Now we are going to talk to Lufthansa to adhere to the plan we had," Singh said.

This is an exposè of a very serious nature. As AJ from Live from a Lounge puts it

The Government of India, being the interested party, and the owner of Air India, gave away national property (bilateral rights to fly) bringing in a lot of Lufthansa flights to India, just to ensure Air India got into the alliance.

At a time when the country is abuzz with unchecked distribution of natural resources like Coalgate and Spectrum, unbridled granting of bi-lateral air services capacity is a serious charge, one that has been previously levelled on the ministry when Praful Patel was at the helm, by an organisation no less, than the Comptroller and Auditor General of India. But then, coming to think of it, the statement by Mr. Ajit Singh relates to the time when Mr. Praful Patel WAS the minister of civil aviation.

Mr. Singh also informed that the ministry was looking at the all the existing bilateral Air Services Agreements, and exploring if the limitation of aircraft type could be removed. Such a move would mostly benefit existing middle eastern operators to India Emirates, Qatar Airways, Etihad, along with Singapore Airlines and possibly Lufthansa.

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Survey: The Kingfisher Airlines drama continues. Is the airline ready for euthanasia?

Employees of Kingfisher Airlines have finally reached a breaking point. The airline, blaming the employees has declared a lockout

Kingfisher Airlines Limited today announced that following a series of protracted and unabated incidents of violence, criminal intimidation, assault, wrongful restraint and other illegal acts including refraining from attending work, by a small section of recalcitrant employees which were all unnecessary and unprovoked, the management has been forced to declare a partial lock-out at the airline, effective immediately.

May be the airline should look at the insensitive tweets of Sidhartha Mallya, son of Kingfisher Chairman Dr. Vijay Mallya.

Just spent the morning playing volleyball with 12 bikini clad models on the beach...now I understand why people hate me. HA!
— Sid Mallya (@sidharthamallya) September 29, 2012

Rubbing a high flying lifestyle, in to the face of employees whose salaries remain unpaid for months, will surely achieve disastrous results.

The Directorate General of Civil Aviation (DGCA) summoning the Kingfisher management to a meeting on Tuesday, which happened to be Gandhi Jayanti, a national holiday, shows us, the seriousness of the government, which till now has been treating Dr. Mallya with kid gloves.

Even the Civil Aviation minister Ajit Singh, a well wisher of the airline, warned that the government establishment could no longer ignore frequent disruptions and non-adherence to published flight schedules, reports The Economic Times (ET).

"Disruption of (flight) schedule has become an issue with Kingfisher Airlines. While the issue of passenger safety is paramount and cannot be jeopardised and DGCA needs to be satisfied that there are no safety concerns, Kingfisher has to also ensure that they operate flights as per the schedule they have submitted to the DGCA," Singh told ET over phone.

To rub salt in to the wounds, the Kingfisher management arrived in Delhi on board a flight of arch-rival IndiGo. Kingfisher CEO Sanjay Aggarwal and Executive Vice President Hitesh Patel had an hour’s meeting with DGCA chief Arun Mishra. FirstPost reports, Aggarwal told the regulator, Kingfisher is loosing Rs. 80 million (Rs. 8 Cr., $1.5 mn) per day and also presented ten points. Most of them we have heard before. During the lockout, the airline cuts its losses in half, says Mint. This raises the question, why not keep the airline in hibernation till a foreign investor is found? Two immediate answers are; (1) Given its massive losses and accumulated debt, it is not very certain how attractive an investment Kingfisher is, despite the claims of the company and (2) With each passing day, by not operating its schedule, the airline is loosing its most desired assets, the routes and peak-time landing and parking slots at the major airports.

In the meeting, the airline executives reportedly told the DGCA, Kingfisher is in talks with the various authorities for unfreezing multiple bank accounts, holding about Rs 600 million, frozen due to non-payment of various taxes and mandatory dues, which includes the with-holding taxes deducted on employees salaries, but not remitted to the government. An act, which invites immediate trips to jail for mere taxpayers like you and me, but not the Chairman sahib. 

In the meeting Mishra gave an ultimatum, that the airline must give a time-line for paying employees, apart from a “satisfactory and realistic” operational preparedness plan, before it can get permission to fly again, as per a report in Business Standard.

Mr. Mishra went to warn other airlines not to profit from the suspension of Kingfisher flights, but market forces are already taking effect, and fares are rising, thanks to panic buying for the upcoming holiday period by concerned travellers

Aggarwal who apparently has not been paid salary himself was left to defend the airline while the Chairman was nowhere to be seen. He was confident the airline, which has a monthly wage bill of Rs. 200 million, would be able to pay the pending salaries in the next few days. The reason for Aggarwal's confidence? May be a deal between United Spirits and Diageo, which DNA reports should be announced tomorrow. However, some other reports suggest that Mallya will use the proceeds of this sale to retire those liabilities that have his personal guarantee. Is he getting ready to finally bail out of Kingfisher Airlines? Or once his guarantees are retired, he threatens the banks to walk away from Kingfisher unless additional funding is provided?

The Economic Times also reports that Mallya has borrowed Rs. 525 Cr. from HDFC Bank against his ancestral property, but it is not clear whether this money has been used to fund Kingfisher Airlines in any way. Is Dr. Mallya reduced to selling the family jewels to wriggle out of the situation?

Despite the regulator not being satisfied, according to the Mint, Mishra has indicated there is no risk of the airline being shut down, since they have more than the minimum five aircraft.

This surely begs the question, why is the airline still being propped up? Is it to protect the books of the various government owned banks, led by State Bank of India, who are owed over Rs. 80 billion (Rs. 8,000 Cr.), and whose books will be awash with red if the airline goes under? Is it because of the government's policy, which does not allow for quick or easy liquidation of failed companies, thanks to a misplaced pride to demonstrate, that Indian companies do not fail?

Can this airline be saved? Or is it time for this airline to be euthanised? Share your views via the survey below and via comments.

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Ajit Singh's desire for Air India to be number one unleashes a fare war amongst Indian airlines

Less than a week ago the Union Minister of Civil Aviation Mr. Ajit Singh asked Air India to submit a plan to enhance its share in the domestic passenger market, with the ultimate goal of being number one. This desire, against a continuing decline in domestic air passenger numbers. In August only 4.369 million passengers travelled, down 4% from the 4.537 million of July, thanks to surging airfares and a slowing economy.

Jet Airways (down 1.4%) and Kingfisher (down 0.3%) were double hit, as more passengers shifted towards the low fare carriers IndiGo, SpiceJet and GoAir, but Air India kept its market share steady; an decent performance for a full fare carrier, in these trying times.

Mr. Ajit Singh asked Air India to come out with innovative and customer focused strategies to achieve optimum utilisation of all planes and also maximum utilisation of each plane, but it appears the folks at Air India seem to know only one way to increase market share, a method on which, my fellow analyst, Vinay Bhaskara, made a telling comment

"Once the chase for market share commences, industry-wide bankruptcy looms"

Yes, you guessed right dear readers; to meet the minister's "wishes" Air India has unleashed a fare war to gain market share. It promptly dropped its 30 day advance purchase fares by 15%. The very next day, the country's largest private full service carrier, Jet Airways, followed suit with fare drops on 30 day and 21 day advance purchase APEX fares. Yesterday, other Indian carriers, including, IndiGo and SpiceJet have joined the fare slashing party.

Yet, this is no fun party. These airlines, for all practical purposes, are eating their young to survive. In this war of attrition, everyone is going to be the loser. As passengers we maybe getting a good deal in the short term, but in the long term, it will be us passengers, who will have to make good the losses of the airlines by paying higher fares.

Additionally, as tax-payers, our tax Rupees are being forcibly wrested to infuse Air India with an unlimited lifeline, and if anything, the carrier, and its political masters, have a moral obligation to be more careful and judicious in the use, some may say, waste, of our money.

Surely a well educated Ajit Singh, an alumnus of the prestigious I.I.T. Kharagpur and Illinois Institute of Technology, Chicago, realises what his well intentioned comments are resulting in, and reigns in this disastrous fare ware before it gets out of hand.

What are your thoughts on this situation? Please share a comment.

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New terminal at Lucknow airport found defective

A note from the Press Information Bureau of India about Lucknow airport, which is incidentally named after the father of present civil aviation minister Ajit Singh. The airport is owned and operated by the Airports Authority of India.

Taking a serious note of the complaints of irregularities in the construction of the New Terminal Building of the Chaudhary Charan Singh Airport, Lucknow, Union Minister of Civil Aviation, Shri Ajit Singh has decided to refer the matter to the Chief Technical Examiner’s Wing of the Central Vigilance Commission (CVC) for conducting a detailed enquiry into construction of the building. The decision of Shri Ajit Singh is based on a preliminary enquiry report submitted by a committee which was headed by Shri Samir Sahai, Chief Vigilance Officer, Pawan Hans Helicopters Limited. This committee was constituted by the Minister himself following various complaints received from Members of Parliament and news items published in this regard in newspapers. The report submitted by the enquiry officer has prima facie substantiated various defects in the construction quality, design and maintenance of Lucknow Airport Terminal.

The committee members visited the Airport in Lucknow and found the quality of work of the New Terminal Building below standard. The major defects included leakages from the roof above the check-in counter, in the ceilings near the departure lounge corridor and from some of the thermal expansion joints. The rain water harvesting method was also found prone to leakage as proper drainage system was not in place. The Committee also found that the flooring in the Arrival and Departure Terminal was not proper with granite stone cracking at some places. The electrical fittings were also not properly fixed up at many places. The overall maintenance of the building was found in poor condition, despite the fact that it was inaugurated only about two months back.

As the Committee was of the view that the architectural design as well as construction shortcomings and defects and quality of work need to be verified in detail, it was decided to refer the matter to the CVC. The building was constructed by M/s IPL, Brahmaputra Infrastructure Ltd. (JV) at a cost of about Rs. 90 crore out of which Rs. 85 crore has already been paid to the contractor. This is also noteworthy that the award of the construction was finalized in October 2007 and stipulated date of completion was April 2009. However, the completion was delayed and completed in May 2012. Inauguration of the airport was done on 19th May 2012. The Civil Aviation Minister has taken a serious note of the fact that the airport was inaugurated without ensuring the complete and quality construction. The Minister has clarified to the authorities that stern action will be taken against those found guilty.

The contractor has already received almost all his money. The delay of three years itself would have invoked certain cost escalation clauses in favour of the contractor. What are your views on these developments? Will the true facts ever see the light of day? Will ALL those guilty and culpable face justice?

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