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Essay on “Problems in Indian Aviation Sector” Complete Essay for Class 10, Class 12 and Graduation and other classes.

Problems in Indian Aviation Sector

The aviation industry, once touted as a sunrise sector, seems to have run into turbulence. With all airlines, except Indigo, bleeding over the last quarter, and Kingfisher Airlines facing a severe cash crunch, it will be some time before the sector gets out of the dark cloud.

The figures are distressing. During the September quarter, Jet reported a loss of RS 714 crore, Spice Jet Rs 240 crore and Kingfisher Rs 469 crore. As for Air India, the less said the better. The national carrier’s total loss and debt burden stands at a staggering RS 67,000 crore.

But there is a silver lining. In September, India was the fastest growing domestic market with 18.4% growth (almost 2.5 times the GDP growth). This, according to the International Air Transport Association (IATA), exceeds China’s (9.7%) and Brazil‘s (7.5%), making it the 9th largest aviation market. What’s wrong, then?

Ironically, the growth rate itself. It has led to capacity creation far ahead of demand, leading to excess aircraft seats. “Every airline is trying to fiercely undercut the other with low fares. That’s suicidal when they can’t even recover costs. Air India’s fares went very low but it still continued to pay for lounges, travel agents and various schemes. Other airlines had no option but to follow suit. Now everyone is in a mess. Compete, but for being more efficient,” says an aviation ministry official.

The fundamental structure of the airline industry is such that margins are wafer-thin not more than 3%, so it’s difficult to make money, says the COO of an Indian airline. “It is a cyclical industry where there is recovery, downfall and recovery again. But the recovery is very slow. Plus, cash has to be preserved for global uncertainties, high inflation and interest rates, but few have it. An airline owner, therefore, needs ‘very deep pockets,” he says. But in today’s environment, raising capital is not easy either. This coupled with depreciation of the rupee has added to airlines’ financial problems.

It’s a money-guzzling sector and high and fluctuating prices of aviation turbine fuel (ATP) makes it worse. These alone account for some 50% of operating costs. Add to this the high landing and navigation charges, staff expenses , sales and distribution expenses and profits margins remain low.

Another bug-bear is the sales tax on ATF varying between 4-32% in states. “The civil aviation ministry has asked the finance ministry to bring it under the goods and services tax which will lead to a uniform tax of around 12%,” says the ministry source. “States such as Maharashtra, Kerala, Chhattisgarh and Andhra Pradesh have brought down this tax but more needs to be done.”

The Indian system is also different from other countries, says Kapil Kaul, CEO, South Asia, CAPA, a global aviation advisory and research firm. “Our policy and regulatory structure are often against our own carriers like the five-year operations/20 aircraft rule (to fly abroad) and the restrictive bilateral system. We have a negative fiscal regime making cost structure unsustainable. Plus, the productivity of our Strategic assets is low, especially air navigation services.”

Also, over-aggressive business plans of airlines have done them in. Fast expansion (Air India’s order of 111 planes) without adequate funding has left them Struggling. Is it surprising then that airlines such as jet are planning a sale and lease back of some of its aircraft to repay working capital loans? “Most owners get into this sector enamored by the glamour and without fully wider standing the dynamics,” says the C00. Compare this working style with Singapore Airlines. An Indian pilot who worked with Indian Airlines before shifting to that country says it was the best career decision he took.

“The level of corruption in the DGCA would be unthinkable in Singapore, where work is done efficiently in the shortest possible time. Outstanding professionalism among the management, pilots, engineers and ground Staff allows it to have one of the lowest employees per aircraft ratio,” says the pilot.

And while the civil aviation ministry has proposed FDI, ironically, the decision was spurred by the Kingfisher crisis. Surely, this could have been done earlier, preventing today’s situation. In 1995, when the Tam-Singapore Airlines combine wanted to acquire 40% stake in Al, their plans were scuttled. “Many countries abroad have FDI and the heavens haven’t fallen. FDI will give us a healthy aviation sector, allowing funds to come in and management practices to get better,” says the ministry source. As for bailouts, the COO opposes it. “If an airline is sinking due to mismanagement, that’s the owner’s headache,” he says. “The need of the hour is to have regional airlines. This will allow the economy to grow.”

Also, have rational pricing, adv1ses Kaul, along With a performance-driven management such as Indigo’s. “India has the highest appetite to survive losses. In Europe, unviable airlines exit and people move on.”

With IATA predicting a compound annual growth rate of more than 16% for India’s civil aviation market during 2010-13, the sun may yet shine on this sector.


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