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, 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 company’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.”