Air Pegasus: A Quirk of Fate or a Genuine Incongruity ?

According to International Air Transport Association, India’s air passenger traffic growth rate is over 6 times more than that of the US. India’s civil aviation sector is now acknowledged as the fastest growing market in the world. The sector grew 23.29% in terms of passenger traffic during January-April 2016 compared with the corresponding period a year ago. With more people taking to air travel, the sector is set for an expansion.

The government has notified excise duty of 2 per cent for jet fuel purchased from airports that come under the Regional Connectivity Scheme, RCS which seeks to make flying more affordable for the common man..

How do Air Pegasus and Elix-Nordic view this situation ?

Air Pegasus, owned by Bangalore-based ground-handling services firm Decor Aviation, has failed to pay its leasing dues to its lessors Elix Aviation Capital and Nordic Aviation Capita. Instead, it has submitted a proposal to the two firms wherein it has pledged to pay off its dues with a 50% down payment with the remaining 50% to be paid off in monthly installments.

Shyson Thomas, MD, Air Pegasus at the launch
Shyson Thomas, MD, Air Pegasus at the launch

Shyson Thomas, Managing Director of Air Pegasus, presently grounded and unable to operate, has put 30% of Air Pegasus ‘ stake on sale and is looking for any willing investor. So far, there have been no takers.

The Indian Directorate General of Civil Aviation (DGCA) has set a September 1, 2016 deadline for Air Pegasus to resume commercial operations following which it risks regulatory sanctions.

Given Air Pegasus’ bankruptcy, lessors Elix Aviation Capital and Nordic Aviation Capital have attempted to de-register their respective ATR72-500s.

The Air Pegasus development clearly reveals that there is a visible incongruity between the ground realities and the government plans on India’s civil aviation. A ncap-2015-regional-aviation-indiacompany’s inability to pay the lease rent and its subsequent petition for deferment are construed as the beginning of the collapse of the business. The company is then well advised to salvage whatever it is left with.

With a phenomenal air passenger growth and an enormous future potential in India, Air Pegasus like stories become a matter of alarming concern among investors which directly influences expansion plans of domestic airlines.

Today, Indian aviation boasts of a rusty aviation business environment. The growth in traffic is primarily due to low air-fares. Any increase in air fare will cause this growth to cease. To break-even, the passenger load factor has to be maintained at or above 75%. Air operators in India know this very well. For a new investor, it becomes very difficult to venture into this business.

Initiatives like VGF, 2% excise duty, also do not hold promise. As per Ashwani Lohani CMD, Air India, “A professional firm cannot function on crutches. It has to make money of its own for survival.”

IPO Would Happen at the “Right Time”: GoAir

GoAir, owned by the Bombay-based Wadia Group, is the fifth largest airline in the country with a low passenger market share. It started its operations in 2005 and has had a slow growth owing to the tough aviation environment in India. The company says that the slow growth is strategic so as to maintain profitability.

GoAir buys A320 neosIn June 2011, budget carrier GoAir had placed an order with Airbus for 72 new A320 neo aircraft valued at about Rs 3,24,000 million. Besides, it also signed a Memorandum of Understanding (MoU) with Airbus for another 72 A320neo aircraft at Farnborough International Airshow in June 2016. About the MoU with Airbus, CEO Wolfgang Prock-Schauer said the order is expected to be in place in the next 2-3 months.    “Economic things are stipulated in the MoU and only legal issues are to be worked out,” he added.

GoAir is now eligible to start international flights and is believed to have plans to come out with its initial public offering soon. It plans to raise funds through IPO to start its international operations.

GoAir had filed an application earlier this year for its International traffic rights.

GoAir has now obtained government’s approval to fly to nine countries including Iran, Uzbekistan and Kazakhastan. It expects to start international operations from the next summer schedule — which generally spans from the last Sunday of March and extends to the last Saturday of October. GoAir would be the first Indian private carrier to fly to any CIS (Commonwealth of Independent States). The Ministry of Civil Aviation has awarded GoAir the ensuing routes and frequencies:neo

– Mumbai Int’l or Delhi Int’l to Tehran Imam Khomeini (Iran) – 7x weekly;
– Mumbai or Delhi to Guangzhou or Kunming Changshui (China) – 7x weekly;
– Mumbai or Delhi to Ho Chi Minh City (Vietnam) – 7x weekly;
– Mumbai or Delhi to Malé (Maldives) – 7x weekly;
– Mumbai or Delhi to Baku (Azerbaijan) – 3x weekly;
– Delhi to Tashkent Yuzhny (Uzbekistan)/Almaty (Kazakhstan) – 4x weekly;
– Kochi Int’l or Bangalore Int’l to Doha Hamad Int’l (Qatar) – 7x weekly;
– Kochi/Thiruvananthapuram/Hyderabad Int’l/Kannur to Dammam (Saudi Arabia) – 7x weekly.

Apart from this, GoAir has said it will start seven new flights from 21 August which would connect Delhi to Jaipur, Lucknow, Mumbai, Pune and Guwahati.

Four direct flights connect Delhi, Jaipur and Lucknow. In addition, there will be three connecting flights start from Guwahati, Mumbai and Lucknow and lands at Jaipur, Lucknow and Pune respectively via Delhi.

Almost all these flights are in the afternoon time.

download (6)On the much-awaited IPO, Prock-Schauer has said that plans are on for listing and it would happen at the “right time”.  “We are preparing ourselves (for the IPO). Its a question of timing, it is about the right timing. We are not in a hurry. We will wait for the right timing. We want to be well prepared. There are many things which we need to look at (before going to stock exchange),” he said.

GoAir is aiming for 26 aircraft by end of March 2017 from the current fleet strength of 21. As GoAir prepares to expand its aircraft fleet and fly overseas, its manpower requirement is also building up. Gearing up to implement its ambitious expansion plans, GoAir plans to hire 500 personnel, including pilots, in near future.

“We will expand our fleet by up to 26 aircraft by the end of March next year. We need to build up for the expansion that we are going for. Every aircraft (inducted) needs 100 increase (in manpower) approximately. So we will naturally hire,” he told media. This would result in hiring requirement of at least 500 personnel, including a significant number of pilots. At present, GoAir’s head count is around 2,300, Prock-Schauer said.


Another Casualty: Air Pegasus; Regional Air Connectivity has Few Takers Left

Air Pegasus which operates from Bangalore airport, to regional airports in South India like Hubli said that the airline had cancelled its two flights, ‘due to some technical glitch’. 

Number of Regional Air Operators Shrinking.

Southern India Regional Air Carrier, Air Pegasus, has temporarily suspended its flights with effect from July 26, 2016.  It has been one of India’s Regional Air Operators active in South India. Reports show that it has only one ATR72-500 (VT-APA), a 65-seater twin engine turboprop, left in flying condition. It operated it last on July 26, 2016. The airline had discontinued its feeder service to Kadapa in Andhra Pradesh due to low plane load factor over a year ago.

Read: Exit VRL; Few Takers Left for Centre’s Regional Connectivity Scheme

Air PegasusLow-cost carrier Air Pegasus today has 0.3% market share of domestic air traffic. Its web booking portal shows that all flights for July 28 are cancelled. It is presently selling tickets for some sectors from July 29. One may now safely assume that all is not well with Air Pegasus.

Though no official statement has yet been issued by the Company, it is presumed that the suspension of its flights is indefinite and linked to a combination of technical and financial difficulties. 

Air Pegasus’ situation has triggered concerns regarding its own fate as well as that of the Government’s much hyped Regional Air Connectivity Scheme. Will Air Pegasus meet the same end as failed stories like Kingfisher, MDLR, Paramount & others? This latest story adds to the growing list of airline ventures facing funding and other problems. It includes Bengaluru’s FlyEasy and Chennai’s Premier Airways, Zav Airways, Air One, Zexus Air, and  which are waiting in the wings to start operations. New entrants Turbo Megha and Air Carnival are yet to reap good profits. One existing airline Vijaywada-based Air Costa has a dubious record in flight cancellations as aviation data shows.

The Centre has proposed a Regional Connectivity Scheme by offering various sops to the airlines to fly on regional routes. The Government seems to have grand ambitions to promote regional air connectivity. But, it finds few takers of its scheme. A few days ago VRL Logistics backed out. Now,  a similar story of Air Pegasus has come out.

Although the government is hopeful that the new civil aviation policy will boost regional connectivity, aviation experts believe that it’s a tall order.  Even though the aviation sector is projected as booming, by pointing growing fliers’ numbers and statistics, there are very few enterprising Individuals and Companies who would like to take the risk of investing in an airline business. The Government’s new aviation policy has done little to address this issue. New regional airlines may take abnormally long time to break even. Becoming profitable appears to be a far cry.

Questions are now being raised on whether the proposed policy on regional air connectivity will ever take off or not even when the  aviation sector is booming. Will Air Pegasus become another casualty ? Given that the regional airline business has not been so lucrative in India, what would be its draw ? What will happen to Team Modi’s pet dream : “Take flying to the Masses” ?

Shyson Thomas, MD, Air Pegasus at the launch
Shyson Thomas, MD, Air Pegasus at the launch

Air Pegasus is backed by Decor Aviation, a Bangalore-based ground-handling services company which provides services across 11 major airports in India. Launched in April 2015, it has operated regular passenger flights between Bangalore International, Kochi International, Goa, Kadapa, Chennai, Hubli, Madurai, Mangalore, Pondicherry, and Thiruvananthapuram. Today, its promoter, its MD Shyson Thomas, a veteran ground handling operator, is desperately looking to raise money for his airline venture even reaching out to foreign carriers, private equity investors and his old clients. At the same time, he is confronted with one natural query. Thomas wonders, “Even if I manage to raise INR 100 million, will I be able to earn INR 1 million a month to pay my lenders ?”

Every cloud has a silver lining.

Indeed, there are a number of doubting Thomases who have reasons and evidences to regard Aviation as a dull business prospect. However, an analysis to find the reasons of failure of the failed stories would invariably point to one conclusion – ‘Most of those reasons were man-made, self imposed and avoidable’. In India, the situation is slightly different today. The situation is not as bad as is made out to be. Despite all the negative thoughts surrounding an aviation business, there is a  silver lining  : The demand for Air Travel in India is phenomenal – hitherto unseen anywhere in the world. +20% annual growth! 300 million fliers !! Yet only 2% of its population fly !!! This has often been showcased as superlatives that Indian Aviation has to offer by aviation bodies everywhere in the world.  It is for the supply side – the budding entrepreneurs – to see this as a golden opportunity. The onus is on them to lay their plans well, play their cards right and try not to repeat those mistakes. Sooner than later, the views on aviation business in India will change.