After GoFirst filed an application to declare bankruptcy, once again questions are being raised on the aviation sector going through bad times in the country. After all, why companies are going bankrupt one after the other in India and what are the reasons for this.
The airline sector is currently going through a bad phase. While on one hand Kingfisher Airlines and Jet Airways have sunk, on the other hand the budget airline Go-First is on the verge of bankruptcy. GoFirst itself has applied for Voluntary Insolvency Proceedings in NCLT.
If Tata Group had not bought back Air India , then it is quite possible that Air India would also have sunk. Air India is flying high day by day after coming back to Tata Group after 69 years. IndiGo , the airline that specializes in budget and domestic flights in the country , is continuously achieving milestone after milestone.
If GoFirst is included, then till now three airlines have gone bankrupt in the country. In this report, we tell you which airline drowned when and how…
Kingfisher Airlines
Kingfisher Airlines was founded by fugitive businessman Vijay Mallya in the year 2003 and started its operations in the year 2005 as a single class economy.
Kingfisher Airlines made huge profits in the first few years and bought the debt-ridden Air Deccan in the year 2008. According to statistics, in the year 2011, Kingfisher had the second largest share in terms of domestic flights.
While Kingfisher Airlines was scaling new heights on the one hand, its doom had already begun with the purchase of Air Deccan. Kingfisher bought Air Deccan airline in 2008, but after that the debt burden on Kingfisher increased year by year and there came a time when the company took half of its assets. On the other hand, the rise in crude oil prices at that time brought the airline to its knees.
Kingfisher’s debt increased so much that in 2012 the airline’s license was canceled and all operations were stopped. After this, at the end of the year 2014, United Breweries Holdings Limited, which was the guarantor of the airlines, declared the airline a defaulter.
jet airways
Jet Airways was started in 1992 . After a year, i.e. by 1993, the airline started operations with two aircraft, Boeing 737 and Boeing 300, and the company became the highest-flying Indian airline, earning strong profits.
In the year 2006, Jet Airways bought Air Sahara for about Rs 2000 crore and added 27 new aircraft to its fleet. After this there was no looking back for Jet Airways and along with domestic flights, the company also started international flights.
The decision to start international flights turned out to be ill-advised and the company’s financial troubles began. At the same time, Indigo airline began to strengthen its hold on the market for domestic flights, and as a result, by mid-2012, Indigo broke Jet’s market share in the domestic market.
Gradually and year after year, the losses of Jet Airways increased and the financial problems kept increasing. Till December 2018, the company had 124 aircraft, out of which only 4 to 5 aircraft were flying and the rest were visible on the ground. Were.
Due to heavy losses and debt, Jet Airways declared itself bankrupt in April 2019, ceasing all its operations. As soon as it closed, about 17 thousand employees lost their jobs.
Go first
GoFirst Airline (formerly known as GoAir) is currently on the verge of bankruptcy. The company has also filed an application with the NCLT to declare itself insolvent. This means the company has not yet been officially declared bankrupt.
GoFirst entered the aviation sector in the year 2005. Its promoters had invested a whopping Rs 3,200 crore in the last three years and Rs 2,400 crore in the last two years. Presently Go First is running on Cash & Carry mode. Simply put, the company has to pay for the flights it operates every day.
Giving information, the company said that the company has a total debt of Rs 6,527 crore. At present, the condition of the company has become such that GoFirst has not been able to pay even its operational creditors. The company had to pay for aviation fuel, which the company could not do, forcing the company to cancel all flights.
GoFirst has blamed its troubles on faulty engines from American company Pratt & Whitney, which led to the grounding of half its planes. However, Pratt & Whitney has issued a statement saying that GoFirst has a long history of non-payment of dues.
Why are Indian airlines shutting down?
GoFirst is not the first private airline to shut down in India. In the Indian aviation sector, over the years, airlines either go out of business or are bought by another airline after incurring huge losses.
Raj Rajeshwar Reddy, a long-time Finance Officer of Air India, says that you can call India the graveyard of airlines in terms of airline bankruptcies. From EastWest and Damania in the 1990s to MDLR, Paramount, Kingfisher, Air Costa and Jet in the last decade, the list of Indian airlines that have collapsed is long.
Airlines in India have faced several challenges apart from general mismanagement. We have tried to know from some experts why airlines in India are in such trouble.
Role of fuel
Air turbine fuel (ATF) is a major part of the operating cost in aviation. This usually covers half the cost, but has grown exponentially for a number of reasons. There has been a phenomenal increase in the price of ATF in the last few years by about 60% to 70%.
International oil prices are very heavy for an airline. Fluctuations in ATF mean perpetual volatility in the business. Keerti Sagathia, who worked in fuel supply with Jet Airways, says that the skyrocketing prices of ATF can ruin the airline business. When dues mount, oil companies put airlines on a cash-and-carry basis, making the situation worse.
ATF is heavily taxed in India. States levy a Value Added Tax (VAT) on ATF which is up to 30%. However, a large number of states have reduced VAT. There is also a demand to bring ATF under GST, so that there is uniformity in price and more stability.
Dollar volatility
The appreciation of the dollar also increases the cost for the airline. Jet fuel, lease payments, maintenance, overhaul costs and the purchase of aircraft are usually all transacted in dollars. When the rupee depreciates against the dollar, the daily cost of operations goes down, increasing profits and cash imbalances. This makes overseas tickets more expensive. In such a situation, the margin decreases with the decrease in demand.
Demand imbalance
Fluctuation in demand is a major challenge in the aviation business all over the world. The change in volatility wreaks havoc with the airline business, as every vacant seat leads to a loss. Declining demand on the one hand and high cost on the other become major concerns. Even when demand is low, airlines have to pay salaries to all employees, especially highly paid pilots.
operating cost
The running cost of the aircraft industry is very high. Prateek Bhatt, who works with Tata Air India as an additional director in the logistics department, says that there are several stages in the process of buying new aircraft to maintenance. New planes are ordered years in advance, because they take a long time to build.
An airline must have a good idea of future demand when placing orders for planes. If the planes are delivered years later, the airline has to pay even when there is low demand and it is not able to use all its planes. Planes also cost more when grounded, as they require regular maintenance and are often sent overseas for this.
If an airline does not have enough aircraft when demand increases, it has to lease them at a higher cost. Airport costs are also high, especially for low-cost airlines, as India does not have many low-cost airports for domestic airlines. Often domestic and international flights operate from the same airport.
Government policies
Aviation is one such sector, which is regulated by the government. Since the Indian government itself operated an international and domestic carrier, Air India and Indian Airlines, its policies were often considered more favorable to those airlines.
This made it difficult for private airlines to compete. The government has often been accused of protectionism by private players. Rajni Adhikari, who served as a flight officer in Kingfisher, says that there was no pressure from market forces on state-owned airlines, while the story is different for private airlines. In addition, the government fixes airfares and often airlines are forced to sell tickets at a fixed price. This causes loss to the airlines.
