Why storm clouds are brewing over India’s aviation sector

New Delhi, March 15, 2019: India’s aviation industry has been under pressure over the past 12 months after enjoying four years of enviable growth. The primary reason for the slowdown is rising cost and the inability of airlines to pass on the same to customers.

Major players like Air India and Jet Airways are seeking financial assistance from the government and private lenders to stay afloat. Various technical issues and those related to their staff are adding pressure on the sector.

Here’s a look at the rough weather Indian carriers are facing.

The latest problem to befall the aviation sector in India is the grounding of the Boeing 737 MAX 8 aircraft. Within a span of six months, two Boeing 737 MAX aircraft — Lion Air and Ethiopian Airlines — crashed claiming over 300 lives.

In both cases, the pilots reportedly sensed problems with the engine of the aircraft and contacted air traffic controllers seeking permission to return shortly after taking off.

As a response to the disasters, 15 countries including India decided to ground all 737 aircraft. SpiceJet has 13 planes of the model, while Jet Airways has five. Following the order, multiple flights have been cancelled, while more are on the cards.

Airbus 320 (Neo) fitted with Pratt & Whitney engines also faced numerous technical glitches wherein engines would shut off mid-flight. IndiGo and GoAir were majorly affected due to the grounding of these aircraft over lack of spare engines according to moneycontrol.com.

Financial obstacles

Balance sheets of all airlines in India have been in the red for the past year due to macroeconomic factors. The airlines business has high expenditure and low profit margins, but the impact on the Indian industry has been worse than expected.

It started in September when the rupee breached 70 against the dollar. A quarter of the cost of airlines is in dollar denominations, including aircraft lease, ground handling fees and parking charges overseas. Therefore, expenses climbed as the rupee depreciated.

Moreover, Aviation fuel costs — that make a large part of an airline’s expenses — were made dearer as the central government levied 14 percent excise duty and state governments levy additional taxes that can total up to 29 percent. The additional tax is sensitive to currency movements and was directly impacted by the falling rupee, further increasing operational costs.

Competition

Another reason for the burgeoning problem is the intense competition that was set off after the entry of budget carriers like IndiGo, Spicejet and GoAir.

Jet Airways has been the worst hit carrier due to this crisis as its debt has grown to over Rs 8,000 crore and nearly half of its fleet grounded due to non-payment of dues.

In the third quarter of the current fiscal, the Naresh Goyal-founded airline reported a loss of Rs 587 crore. Air India was rescued from its debt by the government, and has shown improvement in revenues in the first seven months of the current fiscal, but is still financially weak.

Operational crises

Due to its financial condition, Jet Airways has not been able to pay salaries to pilots, staff and management. Low-cost carrier IndiGo too is facing a shortage of pilots. This has led to scores of flights being cancelled, which is further driving up spot fares and inconveniencing flyers. Now the Boeing 737 MAX 8 aircraft have been grounded, flight tickets are expected to climb.

Lack of training

Another serious safety risk to passengers and airlines as highlighted in the findings of the latest report by the Aircraft Accidents Investigation Bureau (AAIB), is the lack of proper training to pilots and other ground handlers. The preliminary report suggest that staff guiding planes and a few ATC officials were seriously stressed and over-worked, which could cause an inadvertent mishap.

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