IndiGo makes formal offer to buy Air India’s international operations
BENGALURU, JUNE 29: The first official “interest” in acquiring national carrier Air India has come from the most unexpected source, the low-cost IndiGo. On the face of it, IndiGo and Air India are more like chalk and cheese. The former is an ultra low-cost airline while Air India, called the Maharaja, operates like one. In a notice to the BSE, IndiGo’s president Aditya Ghosh on Wednesday said he has written to the Civil Aviation Ministry expressing interest in buying the airline. “…Kindly treat this letter as our expression of interest in acquiring the international operations of Air India and Air India Express. Alternatively, we are interested in acquiring all the operations of Air India and Air India Express,” the letter said. According to the Ministry, this was the first “unsolicited” formal offer for Air India. There have been a few informal offers from both domestic and international airlines too, the Ministry said. An analyst with an international consultancy firm who did not wish to be quoted said Air India is a very valuable company in spite of all the criticism it faces. “Air India acquisition can help an airline become a very strong player. The network it brings to the table with a multitude of connections, hangars, slots, real estate… can play a key role for the airline to get a huge market share in the domestic as well as the international markets,” the analyst said. Buying the international operations would mean getting the Star Alliance tag on a platter and prime slots at airports such as Heathrow — and the Boeing Dreamliner fleet as well. Air India Express is another good buy because it is profitable too. Another airline analyst, Devesh Aggarwal, said there is very little synergy between the IndiGo and Air India. Given the ?52,000-croremountain of debt weighing it down, the government could sell off the three profitable subsidiaries of the airline which will considerably reduce the total debt, the analyst added. For IndiGo, which commands a 41 per cent market share, acquiring Air India will increase its share to over 50 per cent. But the analyst said that it remains to be seen how the airline will raise funds to make this acquisition as the carrier has placed huge orders for aircraft, including 50 ATRs worth $1.3 billion recently. Ian Thomas Authentic Jersey
IATA flags information gaps, seeks clarification on GST
Global airlines body International Air Transport Association (IATA) today sought clarifications on the tax treatment of air travels under Goods and Services Tax (GST) and claimed that there were “information gaps” regarding the implementation of the new tax regime. The aviation ministry, too, had earlier sought postponement of the GST implementation by two months on the ground that airlines needed more time to revamp their systems to comply with the new tax regime. In a u-turn, the ministry later said it was prepared for the GST roll out from the stipulated date — July 1. “There are still information gaps. We look forward to receiving the guidance notes to be provided by the GST Council,” said Country Director-India of the IATA Amitabh Khosla in a press statement. The body has sought clarification on “taxation treatment of continuous journeys” as the new taxation system is likely to make non-stop flights more expensive than stop-over flights. It has also expressed concerns about levying of the GST on air cargo. “We believe that the levying of GST on cargo export services by air contradicts standard GST principles as well as the treatment of such services under the service tax regime. Clarification would help align this with international standards and principles,” the statement added. Carriers, including Air India, have expressed concern over certain aspects of GST. Airline officials said making changes in the global ticket distribution system to ensure compliance with GST would take time. Airlines are also in a fix over the possibility of movement of stocks or equipment or aircraft parts being taxed under GST. Another sticking point is that input tax credit is only available for business class travel and not for economy class travel — a segment where there are more number of passengers.This would result in spike in operational costs for airlines. Input tax credit allows an entity to deduct the levies paid for the inputs while paying the taxes on the final output. Since GST is applicable for goods as well as services, input tax credit provides a leeway for the entities concerned. Shawn Williams Jersey
National no-fly list: Aviation ministry meeting inconclusive, no consensus on bringing crew, ground staff under ambit
A meeting on Wednesday on a national no-fly list for unruly passengers was inconclusive as top officials of the ministry of civil aviation debated whether airline crew and ground staff should also be covered in the list. A framework for a no-fly list for unruly passengers is in the last stages of being finalised and a top official had said that the rules would be made public in the first week of July. The government had last month made its draft rules on no-fly list public and invited stakeholders’ comments. As part of this exercise several people wrote to the ministry calling the proposed rules “lopsided” and demanded airlines should also be held equally accountable for misbehaviour of their crew. But the meeting today to finalise the rules failed to draw a consensus on expanding the scope of the national-no fly list and to apply it to the airline crew and ground staff as well, said a ministry official. Brett Kulak Authentic Jersey
Debt biggest challenge for Air India’s disinvestment
The Group of Ministers headed by Finance Minster Arun Jaitley will take a call on key issues that will make debt-laden Air India’s stake sale to private players more attractive. The Ministerial group will consider hiving off Air India’s assets and a portion of its non-aircraft debt to a special purpose vehicle (SPV) as a first step toward clearing up its balance sheet. “The Civil Aviation Ministry had proposed forming a SPV housing a substantial portion of its working capital loan and assets,” a senior ministry official said, on the condition of anonymity. “The sale of Air India’s prime real estate assets will help in meeting its liabilities,” the source said. Air India has a total debt of around ?52,000 crore which comprises of ?22,000 crore as aircraft loan and the rest as working capital loan and other liabilities. Some of its prime real estate properties include a building at Nariman Point and another at the old airport in Santa Cruz in Mumbai, freehold land in Chennai’s Anna Salai, an office in Baba Kharak Singh Marg in Connaught Place in New Delhi and freehold land and buildings in Hyderabad. However, the airline has mortgaged some of these as security with banks for availing loans. The Government may also separately go for strategic disinvestment of Air India’s three profit-making subsidiaries: its MRO unit Air India Engineering Services Limited, ground handling arm Air India Transport Services Limited and Air India Charters Limited. Brian O’Neill Womens Jersey
Domestic airlines eye bigger share of foreign traffic
Unlike many countries, international air traffic to and from India continues to be dominated by foreign airlines, primarily from West Asia. But Indian carriers have been growing their share of the pie steadily. From about 30 per cent in FY14, the share of domestic airlines in India’s international traffic rose to 34 per cent in FY16 and further to 35 per cent in FY17, says a report by rating agency ICRA. This is a result of Indian carriers outperforming their international counterparts in traffic growth. For instance, in FY17, while overall traffic growth to and from India was 8.4 per cent, the domestic carriers grew their international traffic at a faster 11.8 per cent. While this is much slower than the about 22 per cent growth in domestic air traffic in FY17, the foreign traffic opportunity is also getting much attention from Indian carriers. More flights by both established players (Air India and Jet Airways) and relatively new entrants (IndiGo Airlines and SpiceJet) have aided the trend of growing market share on foreign routes. The Jet Airways and Air India groups have, over the years, built up significant share on the international routes (13.5-15.5 per cent), while IndiGo and SpiceJet are gradually building up their presence (about 3 per cent share each). More on the cards In the coming years, the share of domestic carriers in India’s international traffic is likely to grow. One, with the government replacing the 5/20 rule with the 0/20 rule last year, airlines such as Vistara and Air Asia India are ramping up their fleet to reach the 20 aircraft threshold that will let them fly foreign routes; there’s no more waiting to complete five years in domestic operations before going international. These airlines could start international flights in calendar 2018. GoAir, which already has more than 20 aircraft, has plans to start flying foreign routes in the current fiscal (FY18). Next, a fair portion of the large aircraft orders placed by many Indian carriers is likely to be placed on international routes. A recent ICICI Securities report says that in April-May 2017, the total capacity of IndiGo Airlines, which has the largest order book among domestic carriers, increased 21 per cent y-o-y. The chunk of this was deployed on international routes, with 17 per cent capacity growth in the domestic segment and 64 per cent in the international segment. In the case of Jet Airways, too, while domestic capacity increased 7 per cent y-o-y in April-May 2017, international capacity grew 10 per cent. GoAir, in the medium term, intends to deploy as much as 30 per cent of its expanded capacity on international routes. Profit pressure Are foreign routes of Indian carriers doing better than domestic ones? Not quite. Jet Airways gets more than half its revenue and profit from international operations, aided by the tie-up with its strategic investor Etihad Airways. But this segment did worse than the domestic business last year (FY17), with a sharper fall in operating profit and margins. Similarly, the international operations of IndiGo, which contribute about a tenth of its overall revenue and profit, did worse than the domestic business last year. Competition and higher costs, including fuel expense, which impacted the domestic business, took a bigger toll on the airlines’ international business. Despite this, domestic carriers are likely to step up on their international business. For one, margins in the international segment remain better than the domestic operations, aided by lower fuel costs. Also, airlines in India would prefer deploying a portion of the impending huge fleet capacity expansion on foreign routes, lest they drag down domestic fares. According to a report by ICRA, the current order book of Indian carriers is nearly double their current fleet size. Sam Shields Jersey
USIBC sets up India task force on civil aviation
The US-India Business Council has constituted a task force to identify opportunities in the Indian civil aviation sector. The task force, chaired by engine maker Pratt & Whitney’s managing director (India) Palash Roy Chowdhury, will focus on identifying opportunities based on the National Civil Aviation Policy (NCAP), a release said. Amber Dubey, partner and head of aerospace and defence at leading consultancy KPMG in India, will be the co-chairman of the India task force. “The task force will engage with various stakeholders to promote international best practices and address potential hurdles that surface as American and Indian companies deepen engagement in India’s burgeoning civil aviation market,” the release said. Registering double-digit growth for more than two years, India’s domestic aviation sector is one of the fastest growing in the world. Chowdhury said the task force would seek to support growth of US corporations in India by aligning with the priority areas of the Indian government. “Our member companies are committed to the success of the government’s flagship programmes such as the Regional Connectivity Scheme and Make In India, and bringing the best in technology in related areas such as airport infrastructure and security…,” USIBC President Mukesh Aghi said. Randy Gregory Jersey
Need to make commercial planes in India, says SpiceJet chief
India should come out with policy initiatives for local manufacturing of commercial planes as its aviation market is poised to become the third largest in the world, SpiceJet chief Ajay Singh said. SpiceJet got a shout-out from US President Donald Trump, as he stood along with Prime Minister Narendra Modi in the White House Rose Garden, for orders placed with US aircraft maker Boeing. “I was pleased to learn about an Indian airlines’ recent order of 100 new American planes, one of the largest orders of its kind, which will support thousands and thousands of American jobs,” Trump said, without naming SpiceJet which has placed the USD 22 billion order. Singh, who has piloted the no-frills airline out of troubled times, said the Indian government should come out with policy initiatives for manufacturing commercial planes inside the country. “It (making commercial planes in India) has not been given a thought to, at the moment,” Singh told PTI in an interview. When the government can talk to companies like Apple about assembly of phones, why not the plane manufacturers, he wondered and stressed that the government needs to start discussions with aircraft makers to understand what they need. Noting that India is projected to become the world’s third-largest commercial aviation market by 2020, Singh said Indian airlines have placed orders for more than 600 commercial planes. If the Indian government can push for making military planes — when the orders are for little over 120 – it is time that New Delhi thinks on those lines for commercial planes too under the ‘Make in India’ programme, Singh said. “They have been talking about it on the military side but on the commercial side, there has been nothing much,” the SpiceJet Chairman and Managing Director said. India’s domestic aviation market is one of the fastest growing in the world and has been witnessing double-digit growth for more than two years. “I think we need to…put some pressure on our manufacturers, much as we are doing on the (fighter jets) transaction. “To say that look, there is a huge market available for you in India, so why don’t you manufacture here? Perhaps, there can be some form of concessions given to people who might want to manufacture in India. Both tax concessions as well as creating a market opportunity for them,” Singh said. Mentioning the opportunities, he said: “We are growing 20-25 per cent. Despite this growth, there are only three percent of the Indians that fly, so obviously the potential is really immense. “Supposing we were to say that look, in the regional connectivity scheme, you will have to use aircraft which are manufactured in India. There is automatically a market which opens up.” The ambitious regional connectivity scheme aims to connect unserved and under-served airports in the country as well as make flying more affordable. SpiceJet operates 364 average daily flights to 46 destinations, including 7 international ones. It has a fleet of 35 Boeing 737NG and 20 Bombardier Q-400 planes. SpiceJet had announced an order worth USD 22 billion with the US aircraft maker in January. The order is expected to create 1.32 lakh high-skilled jobs in America. Last month, the airline also signed an initial pact for 40 Boeing 737 MAX planes. This includes conversion of 20 737 MAX 8 airplanes from its existing order of 737 MAX 10s. Responding to a question, Singh said SpiceJet order alone is creating thousands of jobs in the US. “We wanted to bring home the point that, as India does well, as our economy does well, as Indian aviation does well, companies like SpiceJet order more and more planes. “We are actually helping create a very large number of jobs in the US,” he said. Singh also said that India should be looked upon as not only a strategic partner in a military context, and in the context of two countries together fighting terrorism, but also as a strategic partner that helps create jobs in the US. Eddie Vanderdoes Authentic Jersey
Donald Trump lauds SpiceJet’s $22-billion order to Boeing
SpiceJet has been cited by President Donald Trump for doing its bit to create US jobs through a $22-billion order for Boeing planes, capping a turnaround effort by the airline that had been on the brink of closure in 2014. “I was pleased to learn of an Indian airline’s (SpiceJet) recent order of 100 new American planes, one of the largest orders of its kind which will support thousands of American jobs,” the US president said in the joint press conference with Indian Prime Minister Narendra Modi. Trump, a professed advocate of US-based businesses, was unequivocal in his stance that the trade deficit in favour of India should be reduced. Since Trump’s inauguration, protectionist rhetoric has been rising in the US, putting a question-mark over the remote-services-based business model that has spawned global outsourcing giants Infosys, TCS, or Wipro. Amid mounting demands for job protection in the US and stricter visa controls, Indian technology companies have also begun hiring more hands in North America. “This is a $22-billion order and these planes will be manufactured in the US. As per the US Department of Commerce, it creates 132,000 high-skilled, high-paid American jobs within the US,” SpiceJet Chairman Ajay Singh said in a statement. At present, SpiceJet is the only low-cost carrier in India that has placed big aircraft orders with Boeing: Its peers prefer Airbus instead. IndiGo, GoAir, AirAsia and Vistara are all operating Airbus fleet, making the European aircraft maker the market leader in the single-aisle space in the country. Between IndiGo and GoAir, Airbus has aconfirmed order book of over 550 single-aisle Airbus 320 aircraft. In contrast, SpiceJet has ordered up to 205 planes from Boeing, including 40 new Boeing 737-10 aircraft, enabling the Seattle-based aircraft maker to make a dent in the Indian market. SpiceJet, which ceased operations for a day on December 17, 2014, due to lack of funds to pay oil companies, has seen 12 consecutive profitable quarters since then. The turnaround happened after Ajay Singh took over the company from Dayanithi Maran’s Sun Group. It has also benefited from the decline in global oil prices. The airline, which was weighed down by liabilities of about Rs 1,500 crore, has managed to reduce liabilities and now fully funds its working capital with internal accruals. Other than SpiceJet, Jet Airways had ordered 75 Boeing 737 Max in 2015. Air India and Jet Airways are the two carriers in India operating a fleet of both Boeing and Airbus aircraft. For aircraft makers, India and China are important markets. India’s civil aviation market has averaged a growth of 20%, making it one of the fastest-growing markets in the world. Singh said that funding arrangements for all aircraft on order are coming very quickly in place. “We have already funded a significant number of those aircraft through a sale and leaseback mechanism. And we have several offers. We really see no great challenge to funding these planes. Going further, we will take a call, depending on what is cheaper for us at that point in time…Fortunately, we are in a pretty conducive financial environment, where interest rates are low across the world,” Singh said. Carson Wentz Authentic Jersey
Air India: Divestment of govt stake unlikely this financial year
As discussions around Air India pick up steam in the government, the process of actually divesting the national carrier will be a long drawn one and will require multiple cabinet approvals, Business Standard has learnt. Senior government officials who are part of the deliberations said at least two approvals of the Union Cabinet, led by Prime Minister Narendra Modi, could be necessary, and that any dilution of the centre’s 100 per cent stake is highly unlikely this fiscal. If and when privatization is finally decided upon, the first cabinet approval will be an ‘in-principle approval’. That will set the stage for Finance and Civil Aviation ministries to start the process of valuation of the debt-ridden airline, decide upon the eligibility of buyers and identify prospective suitors, decide upon the method of sale, take decisions on what to do with the airline’s assets and its Rs 46,570 crore debt, dealing with employee unions, and hiring financial and legal advisors for the sale. Once this process is complete the matter will be taken up by cabinet again, to give its final approval. Sources said that the draft cabinet note, which is being circulated among the ministries, is only for the first ‘in-principle’ approval. “Privatising Air India is a difficult and long-winded process. The way it is being portrayed in certain sections of media is that a decision is imminent and the sale will happen quickly after a one-time approval by the cabinet. It is more complex than that and we may need to approach the cabinet multiple times,” said a senior official. “Right now, we are just the initial stages of these deliberations, and are still dealing with a number of issues before any approval is sought,” the person said. As reported by Business Standard earlier, the Civil Aviation Ministry is still said to be considering the option of retaining ownership of the national carrier, and running it after retiring debt. As part of inter-ministerial discussions, a number of options have been discussed and retaining ownership is one. The options being discussed are either reviving the airline, going for privatization, or reducing the airline’s debt by selling off the assets. Other issues being deliberated upon deal with the issue of the airline’s lenders’ willingness to convert debt into equity, and whether to sell its subsidiaries separately – Air India Engineering Services Limited (AIESL), Air India Transport Services Limited and Hotel Corporation of India (owner of Centaur Hotels). The other issues being discussed, as per the official, include whether go for some sort of a retrenchment by laying off workers through employee voluntary retirement scheme, fleet management, and whether foreign companies should be allowed to buy stake in the national carrier, though no decision has been finalised yet. India allows foreign institutions to own stakes of up to 100 per cent in local airlines, but overseas airlines can own up to a 49 per cent stake. MacKenzie Weegar Womens Jersey
Surjewala upset over Jewar airport
Haryana Congress MLA Randeep Singh Surjewala has taken strong exception to the recent decision of the Central government to set up an international airport at Jewar in Uttar Pradesh, saying that the interests of Haryana were being sacrificed at the “altar of political expediency”. Mr. Surjewala, who represents Kaithal in the Haryana Legislative Assembly, said that the United Progressive Alliance (UPA) government had granted in-principle approval for a green field airport in the State in 2013-14. The present BJP government in Haryana, he said, had failed to protect the State’s claim. He added that the Centre had made a unilateral announcement about setting up an international airport at Jewar, ignoring Haryana’s claim for one at Jhajjar, Meham or Karnal. Fred VanVleet Authentic Jersey