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.”

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.

Curious Case of Placing 1850 New Airplanes

In 2015, one of the biggest plane makers in the world, Boeing, had predicted for India a demand for 1,740 new airplanes valued at USD 240 billion over the next 20 years.

In 2016, it is saying that the country will need 1,850 new airplanes worth USD 265 billion over the next 20 years.

This increasing demand will be driven by single-aisle planes such as the 737 Max and Next-Generation 737s from Boeing and A320 Neos from its arch rival Airbus.

Boeing Corporation and others appear bullish about the Indian aviation sector, the fastest-growing market in the world in terms of passenger traffic as per the latest IATA numbers. Dinesh Keskar, Senior Vice-President for Asia Pacific and India, Boeing Commercial Airplanes interacted with media while releasing Boeing’s ‘Current market outlook for India’ report. 

Keskar elaborated on India’s need of more airplanes:

Type of Planes

Seats

Aircraft Nos.

Value USD (billion)

Single-aisle

90-230

1560

180

Wide-body

200+

280

85

Regional Jets

10

90

1

This will make India contributing to over 4.6 per cent of the global demand for 39,620 airplanes by 2035, and 4.5 per cent of world demand in terms of value,” Keskar said.

Attributing the bullish outlook to the new civil aviation policy, favorable demographics and low fuel prices, Keskar said, “India continues to have a strong commercial aerospace market and the highest domestic traffic growth in the world.”

Keskar commented on the government’s regional connectivity push, saying even as it has capped prices, the promise of refunding 80 per cent of losses, if any, will help the airlines drive the business. The government revamped rules governing the aviation industry, liberalising norms for domestic carriers to fly overseas and spreading the country’s air travel boom to smaller cities. “With the new aviation policies in place, we even see greater opportunities, and remain confident in the market and airlines sector in India,” Keskar said. Boeing

The potential for further growth is encouraging operators to scale up their fleets. At least 709 planes are on order for the next 5 years. Domestic carriers are shopping for airplanes one after another in the hope that demand will stay strong and India will eventually become the third-largest civil aviation market in the world after China and the US by 2026.

  • Jet Airways ordered 75 Boeing 737 Max in November 2015.
  • India’s largest player IndiGo, has ordered 430 Airbus narrow-body jets on top of the 108 it already flies. It is the largest order in aviation history from Airbus.
  • GoAir ordered 72 new A320neo planes from Airbus. It is planning an IPO while simultaneously it may begin International services.IndiGo adds more aircraft
  • SpiceJet intends to increase its fleet size to 150.
  • New entrants Air Asia India and full-service airline Vistara, a joint venture between the Tatas and Singapore Airlines, are accelerating their fleet expansion plans.
  • Vistara has said it will have a fleet of 13 aircraft and fly up to 20 destinations by the end of 2016. The carrier has now 11 planes.
  • Vistara is also considering branching into the regional commuter carrier business using 70-seater aircraft. A subsidiary tentatively named Vistara Express.

Big challenge : To find landing and parking spaces for new planes.

Vistara Chief Strategy and Commercial Officer, Sanjiv Kapoor said recently in a Twitter post, “Yet hundreds of A320s on order. Where will they all fly, am really curious!”

Even as Boeing predicts that India will have 1850 aircraft over the next two decades, several Indian carriers struggle today to operate their aircraft. Reason : Inadequate airport infrastructure. The airlines are just able to manage 2,000 flights a day, and only a few of them could touch the 90 percent on-time performance mark. As air travel heats up in India, the world’s fastest-growing major aviation market,  aviation infrastructure has miserably failed to keep pace with air traffic growth which has been phenomenal in recent past .

The average time an aircraft spends circling before it can land in Mumbai during peak hours is about 45 minutes to an hour, versus 25 minutes for Singapore and zero for Qatar, according to Dubai-based Martin Consulting LLC.

India plans to invest $5 billion to improve airport infrastructure, which is “inadequate” compared with China’s proposal for $130 billion in 15 years, a June research paper by KPMG and the Associated Chambers of Commerce of India said. A proposal for a new airport in the outskirts of Mumbai has languished on the drawing board since 1997. 

As much as $40 billion in investment is needed in the next 15 years to improve India’s airport infrastructure, according to estimates by Sydney-based CAPA Centre for Aviation.

“Infrastructure has to catch up as dynamics of aviation have changed,” said Mark D. Martin, founder Martin Consulting. “Countries must make sure that airports are built not just for bigger jets, but also for smaller, 5-10 seater planes to connect its people.”

The problem is not just limited to India. There has often been a gap between Mumbai Airportintention and infrastructure delivery for Asian airport, according to a 2015 research paper by OAG Aviation Worldwide.

It isn’t the case that India hasn’t done much in the past 10 years to develop airport infrastructure. It spent $2.7 billion to upgrade the airport in New Delhi and added a new terminal in 2010, while it spent another $885 million to modernize the Mumbai airport in 2014. 

Still there have been other airports which were not so lucky. There are 394 other unserved and 16 under-served airports in the country. Out of the nation’s 450 airstrips and airports, only 75 handle commercial airlines, with the rest remaining idle or rarely used because of weak demand, according to the government. “No aircraft movement takes place at 32 airports out of 125 airports, including civil enclaves belonging to Airports Authority of India (AAI),”Minister of State for Civil Aviation Jayant Sinha has said in a written reply to the Parliament.

Prime Minister Narendra Modi is trying to revive many of such unserved and under-served airports and airstrips to enhance regional connectivity. This has been a key highlight of the New Civil Aviation Policy. Weak demand have made many of these airports unviable even for commercial single-aisle jets. Moreover, in an effort to attract capital, Prime Minister Narendra Modi in June 2016 liberalised norms for foreigners, who can now fully own existing airports without government approvals.

jayant-sinha“In order to implement the scheme, a proposal has been submitted to the Ministry of Finance for making a budgetary provision of Rs 46,500 million to revive a total of 50 such airports/airstrips,” Sinha said in a written reply to the Rajya Sabha. “The scheme is to be implemented over a period of three years.”

Development and upgradation of airports is a continuous process and is undertaken by AAI depending on traffic demand, commercial viability and socio-economic considerations, among other factors.432526-sanjiv-kapoor-zeenews

“We need to move fast,” Sanjiv Kapoor said in an interview. “That’s a huge issue. You cannot have a commercial capital and a political capital that do not have slots available for growth,” he said, referring to Mumbai and New Delhi.

India finds itself hard-pressed to find parking slots for new airplanes. The lack of infrastructural facilities may even force carriers to defer deliveries. This will eventually immensely hurt plane makers like Boeing and Airbus Group SE.