Monday, March 4, 2024

Crash Landing

The aviation sector will be hardest hit by the pandemic, with experts predicting a $3.3-$3.6 bn loss to India domestically in the first quarter of 2021 and a reduction of 5.75 lakh jobs. By Shobha John

The disastrous effect of Covid-19 has been especially hard on the aviation sector globally. In India, the 21-day lockdown led to the grounding of over 1,400 aircraft, including 674 commercial ones. This was accompanied by massive cancellations and rebookings. Air cargo operations, flights carrying medical kits and special ones repatriating passengers were the only ones left unscathed.

Alexandre de Juniac, D-G, International Air Transport Association (IATA), said in a letter to Prime Minister Narendra Modi that Indian airlines were in “grave and immediate danger” of insolvency and this could reduce about 5.75 lakh jobs in Indian aviation. “IATA estimates that Covid-19 could result in a nine percent loss in passenger volumes and $2.1 billion loss in passenger base revenues for the air transport market in India in 2020,” he said.

Globally, airlines may burn through $61 billion of their cash reserves during the second quarter ending June 30, 2020, IATA said. Full-year demand would fall by 38 percent and revenues drop by $252 billion compared to 2019. “We are looking at a devastating net loss of $39 billion in the second quarter. This will be amplified by a $35-billion liability for potential ticket refunds,” said de Juniac.

In addition, Sydney-based aviation consultancy CAPA forecast that India’s domestic aviation industry could incur losses of $3.3-$3.6 billion in the first quarter of 2021 if flights remain grounded till June-end. It said that domestic airlines could lose approximately $1.75 billion, airports and concessionaries between $1.5 and $1.75 billion and ground handlers between $80-90 million despite a fall in crude oil prices.

Prior to Covid-19, this sector’s economic contribution in India was estimated at $35 billion, supported 6.2 million jobs and contributed 1.5 percent to the country’s GDP, IATA said.
A senior aviation professional told India Legal on condition of anonymity that discussions were going on with the government to urge it to give some reprieve to the floundering sector. The airline industry was looking for a deferral of statutory dues or even cutting them off, passing reduced oil prices to airlines, opening lines of credit, reducing various taxes, be it on aviation turbine fuel (ATF) or parking at airports, and cash funding of workers (mainly daily wagers), he said. However, the sector also understood that it wasn’t completely in the hands of the aviation ministry to do this and it would need to consult with the finance and petroleum ministries to take this further, he added.

Some in the sector were also disappointed that the government had not done enough for it, unlike other countries. (See box) Passengers too are anxious about getting a full refund on cancellation of tickets. While the Direct­orate General of Civil Aviation has assured that this will be looked into once the situation returns to normal, the fact is that no airline has offered to refund money. Though there were reports of the centre planning a $1.6 billion relief package for the aviation sector after the Covid-19 outbreak, it is nowhere in sight. The only response was from Hardeep Puri, Union aviation minister, who tweeted: “We are locked down, but not bogged down. Our aviation officials and professionals are working round the clock with determination and patience. The aircraft are crisscrossing the skies to ensure that ICMR kits for testing Covid-19 reach on time.”
CAPA predicted that the April-June quarter, traditionally one of the stronger quarters for Indian airlines, is increasingly looking like it will be a washout.

It said most Indian airlines had not structured their business models to withstand even regular shocks such as elevated fuel prices or economic downturns, let alone once-in-a-century events. It said that if there was a three-month shutdown, IndiGo’s healthy cash reserves could get wiped out and smaller carriers forced to exit. All this would affect traffic growth, fleet expansion, pricing, costs and business models. This will naturally mean that aircraft orders will be deferred or even cancelled and leased planes returned. Low-cost carrier SpiceJet has already returned a leased Airbus A320 to Bulgarian lessor BH
Air recently.

Meanwhile, airlines have set in cost-cutting measures, in some cases severe ones. It was led by SpiceJet which cut salaries between 10-30 percent in March. Its chairman Ajay Singh took a 30 percent pay cut. It also announced “leave without pay” during March 25-31 when the lockdown was in progress. Angry and anguished employees took to Twitter to vent their fury showing, in some cases, paychecks around Rs 2,000 only. The airline later said that some staff who were entitled to a flying or performance allowance would be getting their salaries in two parts.

At IndiGo, which has 48 percent market share domestically, senior employees have taken a pay cut of up to 25 percent, starting with CEO Ronojoy Dutta. GoAir laid off its expat pilots, initiated a short-term rotational leave without pay programme and announced a pay cut for all employees for March. Vistara implemented its compulsory leave without pay for up to three days for senior executives and line pilots took a salary cut, in some cases up to Rs 40,000. April increments were deferred to July. Air India cut 10 percent in the allowances of all employees.

The silver lining in the cloud is that some vital flights are still taking off. Air India and Alliance Air are operating cargo charter flights—mostly with medical equipment and medicines on several routes.

On March 28, essential items and ICMR kits were transported from Delhi to Aizawl, Kolkata and Hyderabad and another flight took off with essential items from Mumbai to Pune, Bengaluru and Thiruvananthapuram. Air cargo was also carried from Delhi to Pune and ICMR kits from Pune to Patna.

So what should the government do for the aviation sector? CAPA has recommended a three-stage support package for airlines. In the first phase, it has called for a cash infusion to support part-payment of salaries up to a certain grade for three to six months. In the second phase, it suggests a moratorium on outstanding payments for airports for three to six months. Lastly, it suggests bringing ATF under GST, apart from providing a waiver of three to six months on airport charges as and when services resume. In the interim, sales tax should be reduced to four percent, it said.

It is obvious that waiving off taxes on ATF will be a life-saver as fuel amounts to nearly 40 percent of an airline’s operational cost. In India, these taxes vary from state to state. Karnataka, for example, levies three kinds of rates on airline fuel—one percent for flights covered under the Regional Connectivity Scheme, five for airplanes weighing below 40,000 kg and 28 percent for heavier planes.

If this scenario wasn’t bad enough, flight crew who were instrumental in getting passengers back to their countries were harassed and stigmatised. Such was the paranoia among the public that an Air India air hostess reportedly said that her neighbours threatened to evict her from her apartment while she was heading to the US, saying she would “infect everyone”. Her husband had to call the police. Some staff was stopped from entering their own residential premises by security guards. “We also have families and children that we leave at home to help fellow citizens … The least we expect is for our colleagues to not be harassed and ostracised,” said one of them reportedly. A viral video put out by a journalist one night showed chaos on Lawrence Road in Delhi at the home of an Air India cabin crew. It showed a man with a handkerchief around his face yelling into the camera, presumably held by the employee.

The public has forgotten that airline personnel have worked during these trying times at great risk. Already, a first officer of SpiceJet, a cabin crew of Air India and a ground staffer of the airline have tested positive.

Airline employees too became emotional as flights came to a halt. A Virgin Australia cabin supervisor final landing announcement brought people to tears. Cassy wished the passengers the best “during these testing times” and said to her crew: “To my crew, words don’t come close to describing the family bond we all share. The friendships, hardships, laughter and tears.” She tearfully said she counted herself “extremely lucky to have the pleasure of working alongside you all”.

Meanwhile, planes have been parked at various airports all over India. According to Ameya Joshi who runs an aviation analysis website Network Thoughts, Delhi airport has parked 205 commercial planes and even closed one of its three runways for this purpose. Mumbai airport has nearly 100 planes parked there, Bengaluru, 71, Hyder­abad, 61, Kolkata and Chennai 54 and 53 respectively. “IndiGo has parked its aircraft at 18 airports across the country, while SpiceJet and GoAir have parked at 11 airports each. Air India has parked its aircraft at seven airports in the country, while Vistara and AirAsia India have parked their aircraft at six and five airports, respectively. The top six airports—Delhi, Mumbai, Benga­luru, Hyderabad, Chennai and Kolkata account for 85 percent of all the parked aircraft, with the rest in smaller cities.

All that the aviation sector can do now is wait for the pandemic clouds to part and the sun to shine through.

A helping hand

Measures taken by governments worldwide for the aviation sector which supports              over 30 million jobs

  • US: Congress gave a whopping $58 billion stimulus package for airlines, half in grants for paychecks to its 7.5 lakh employees and the rest in loans to help them keep operating. The Treasury Department, reports said, can demand stock options in return for the loans. However, Boeing is unlikely to take this aid if it comes with strings attached. The stimulus package also includes $100m for general aviation airports
  • Australia: announced a US$430m relief package and waiver of fees including aviation fuel excise, air services charges on domestic airline operations and domestic and regional aviation security charges
  • New Zealand: will open a US$580 million loan facility to the national carrier as well as relief for the aviation sector
  • Singapore: undertaken relief measures at US$82 million, including rebates on airport charges, assistance to ground handling agents, and rental rebates at Changi Airport. Up to US$13.27 bn given to Singapore Airlines—the single biggest rescue for any airline
  • UK: airlines await a rescue package.

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