Yash Verma MBA CMF13

Aviation Industry

INTRODUCTION Indian, formerly Indian Airlines Limited was a major Indian airline based in Delhi and focused primarily on domestic routes, along with several international services to neighbouring countries in Asia. It was state-owned, and was administered by the Ministry of Civil Aviation. It was one of the two flag carriers of India, the other being Air India. The airline officially merged into Air India on 27 February 2011. On 7 December 2005, the airline was rebranded as Indian for advertising purposes as a part of a [1] program to revamp its image in preparation for aninitial public offering (IPO). The airline operated closely with Air India, India's national carrier. Alliance Air, a fully owned subsidiary of Indian, was renamed [2] Air India Regional. In 2007, the Government of India announced that Indian would be merged into Air India. As part of the merger process, a new company called the National Aviation Company of India Limited (now called Air India Limited) was established, into which both Air India (along with Air India Express) and Indian (along with Alliance Air) would be merged. Once the merger was completed, the airline - called Air India - would continue to be headquartered in Mumbai and would have a fleet of over 130 aircraft.

Kingfisher and prices of air fuel Jet fuel price was on Friday hiked in India by a steep 7.6 per cent, the biggest ever increase that took ATF price to all-time high of Rs 72,282 per kilolitre. The price of aviation turbine fuel (ATF), or jet fuel, in Delhi was hiked by Rs 5,146.16 per kilolitre (kl), or 7.6 per cent, to Rs 72,281.92 per kl with effect from Friday midnight, Indian Oil Corp, the nation's largest oil firm, said. This biggest ever increase in price in absolute numbers comes on back of firming international oil rates and dip in rupee value against the US dollar. And new rates will have surpassed the previous high in ATF price of Rs 71,028.26 per kl hit in August, 2008. The hike in percentage terms is however lower than the 12 per cent hike in rates effected from June 16, 2009 when prices were hiked by Rs 3,948.59 per kl to Rs 36,251.51 per kl. The price hike from Saturday will be the fourth straight increase in rates since July, adding to the burden of cash- strapped airlines. Jet fuel, which had hit an all-time high peak of Rs 71,028.26 per kl in August, 2008, shortly after international oil rates touched a record $147 per barrel, had fallen to eight-month low of Rs 61,169.08

per kl in early JulyMumbai, jet fuel will cost Rs 72,830.64 per kl from Saturday as against Rs 68,103.26 per kl at present.Jet fuel constitutes over 40 per cent of an airline's operating costs and the increase in prices will put fresh burden on the cash-strapped airlines.No immediate comments were available from the airlines on the impact of the price hike on passenger fares.

Kingfisher Airlines Chairman Vijay Mallyagave guarantees worth Rs 5,904 crore for the carrier's loans and other liabilities in 2011-12, but did not get any commission for the same because of lenders' opposition. While guarantees given by Mallya fell from Rs 6,156 crore in the previous year 2010-11, the guarantees provided by Kingfisher's holding and associate companies rose from Rs 8,863 crore to Rs 8,926 crore in this period. Mallya had got a commission of Rs 51 crore for these guarantees in 2010-11, but the airline has said that payment of such commissions has been withdrawn after directions from the consortium of its lenders. As per the company's latest annual report 2011-12, sent to shareholders last evening ahead of their Annual General Meeting on September 26, the airline did not make any payments to Mallya during the fiscal. On the other hand, remuneration paid to its CEOSanjay Agarwal nearly doubled from Rs 2.12 crore to Rs 4.01 crore, although the total employee remuneration fell marginally by one per cent to Rs 669.5 crore on account of lower headcount. Kingfisher said its headcount fell by 1,651 people or 22 per cent to 5,696 persons in the last fiscal and the carrier is planning further measures for optimising its "human resources utilisation". Writing on behalf of the company's board, Chairman Mallya said in the 'Report of Directors for the year 2011-12' that Kingfisher is working on a "holding pattern" basis with limited operation, pending policy changes. "Due to the current situation, your company is operating as a "holding pattern" with limited operation, pending policy changes which are in the offing," Mallya said. In aviation parlance, an aircraft is said to follow 'holding pattern' when it makes several mid-air turns waiting for a clearance to land, or to avoid hitting other plane. Kingfisher's net loss more than doubled to Rs 2,328 crore in 2011-12, from Rs 1,027 crore in the previous year. Its total long-term borrowings stood at Rs 5,695 crore as on March 31, 2012, down from Rs 6,306 crore a year ago. Besides, it had short-term borrowings of Rs 2,335 crore at the end of 2011-12, up from Rs 604 crore as on March 31, 2011. For these loans, the airline has used as security all its movable assets, trademarks, 'goodwill' of the company, credit card and other receivables and a mortgage on Kingfisher House.

The airline said the the government is actively considering relaxing FDI norms to allow foreign airlines to pick up equity in domestic players, after representations made by it and other domestic carriers. "This change in policy could provide your company with widened access to equity capital and potential to induct strategic partners," the airline told its shareholders. Mallya said India's airline industry is currently exposed to one of the toughest operating environments and is expected to struggle with profitability pressures, with one of the highest prices for jet fuel across the world, rupee depreciation and high cost of borrowing. 17 banks, led by SBI, have exposure of over Rs 7,000 crore in advances to the crippled carrier, which has not been servicing its debt since January and not paying salaries from March, forcing its pilots and engineers to strike work several times in the past five months. Apart from this huge debt, the private airline also has an accumulated loss of over Rs 8,000 crore. Since its launch in May 2005, the carrier has not made profit. The meeting assumes significance in the wake of last week's report by the industry analyst Centre for Asia Pacific Aviation (CAPA), which cast doubts on the continuation of the operations of the airline if it is unable to infuse at USD 600 million immediately. The lenders last met in July, wherein they appointedHDFC Securities to value the two pledged properties of the promoters, the Kingfisher House in Mumbai and the Kingfisher Villa in Goa - which together have a market value of around Rs 180 crore - with a view to dispose them of as part of their recovery measures. "Kingfisher faces the prospect of an operational shutdown, possibly temporarily, to allow it to restructure and re-organise. A viable turnaround is unrealistic without a significant recapitalisation of the airline," Capa said. According to the agency, restructuring of the airline will require the banks to take a significant hit as they have a huge exposure to the ailing carrier.