Indian aviation

The Indian government has acknowledged problems in the aviation sector this week by stating: “Kingfisher is crashing and right now SpiceJet seems to be giving us harder times as far as airlines are concerned. We have somehow restricted the growth of airlines in the country. We have developed regulations that do not allow Indians to perform. We have to work ahead in this direction,” Minister for Civil Aviation Ashok Gajapathi Raju said as Air India was “selling off” land to Navratna company NBCC in what was actually a non-binding/non-exclusive  MOU. It is hoped the MOU will lead to the identifying and sale of land in Chennai and Vasant Kunj in Delhi that Air India owns.

SpiceJet is being helped greatly by lower fuel costs but after delaying the salaries of its employees by a few days, the airline now has India’s airport authority putting the airline on cash-and-carry mode at airports with the carrier required to pay upfront for the use of facilities from today. This is a big blow to the business but a move that should protect leased assets from the claws of the AAI as happened with Kingfisher aircraft should the worst happen to SpiceJet. Even so the move by the AAI will be seen as a serious blow to the fortunes of SpiceJet as it no doubt means that the AAI credit lines already run-up by SpiceJet have got out of hand. We must now look to see if services will be affected by this move. If they are then cashflow problems are indeed coming to a head at SpiceJet, but of course on the flip-side if services are unaffected then the airline is surviving on forward bookings that are providing immediate cashflow to allow aircraft to fly as Jet Airways managed when it was put on cash-and-carry by the AAI some time ago.

As lessors take back their assets from SpiceJet as they go in for maintenance, the airline is contracting rapidly. In November 2014 cancellations have gone from 40 a day to some 68 per day today, which one hopes might actually improve the airline’s ability to turn a profit.

But consider this: as Indian taxes on fuel reduce and fuel prices before tax tumble one wonders if SpiceJet is not a very good investment option for anyone aiming to gain a serious foothold in the Indian market?

2014 saw the launch of AirCosta and AirAsia India and 2015 will see Air Pegasus, Air One, Vistara, Flyeasy, Premier Airways in the Indian domestic market and one wonders if the passengers will come out to fill these aircraft at a profit to their operators. But as these airline launch, the Indian government is looking to offload Air India – Its panel for getting this off the ground is close to completion with Deepak Parekh, chairman of India’s oldest mortgage lender; E. Sreedharan, former chairman of Delhi Metro Rail Corp.; M. Damodaran, former head of the Securities and Exchange Board of India (Sebi), Naresh Chandra and former Reserve Bank of India (RBI) governor Y.V. Reddy all named on the committee that needs to formulate a report on what the government should do with the airline by March 2015.

As this panel gets going Air India is considering leasing at least 14 A320neo aircraft. The aircraft leasing committee of Air India is evaluating options and will RFP shortly, Air India hopes to lease the A320neo aircraft with the earliest possible delivery schedule with a delivery schedule from 2015-2018.

But as fuel prices dip, Air India might wish to consider A320ceo aircraft…..Indeed as oil prices fall, Singapore Airlines is starting to look like it will post a serious hedging loss as it is hedged at an average of $116 a barrel of jet fuel for 65.3% of requirement in the six months to March 2015, when spot market rates are about $85. Will they move to unwind their contracts?