August 4, 2016.
Air Costa, the regional airliner from Andhra Pradesh, has halted its flight operations.
Air Costa encountered financial issues with its leasing companies.
Growing cash problems facing new airlines exposed.
South India’s regional air carrier Air Costa had to suspend operations due to payment issues with its plane lessor. It thus became the second regional airline to do so after Air Pegasus which grounded its operations few days ago. Air Costa regularly gets listed as one of the highest number of monthly flight cancellations and delays as per DGCA data.
On July 27, Air Pegasus had cancelled all flights indefinitely. Its planes were repossessed by Dublin based lessor Elix Aviation for non-payment of dues. Its operations remain grounded. It hasn’t even started refunding passengers yet.
The twin developments have triggered concerns over the financial viability of regional airlines. The issue assumes importance given the Modi government’s ambitions around the civil aviation sector.
Air Costa’s Embraer E190 jets have said to been grounded by the lessor GE Capital Aviation Services because of pending lease rentals. A lessor gives a grounding notice to the airline when it fails to honor its payment schedule. Ignoring the notice leads to repossession of the aircraft by the lessor. The airline is said to have delayed rent payments on its three E-190 planes to leasing company GECAS. Air Costa has not inducted a fourth E-190 plane because of a dispute with the lessor. There was also a dispute over re-delivery of an E-170 aircraft.
The airline, promoted by Vijayawada, Andhra Pradesh-based construction firm LEPL Group, had plans to fly to New Delhi, Bhubaneswar, Varanasi and Pune from this summer. It started flying in April 2015. At present, Air Costa carries about 3,000 passengers – 24 daily flights across nine destinations – Jaipur, Ahmedabad, Bangalore, Chennai, Hyderabad, Visakhapatnam, Coimbatore, Tirupati and Vijayawada. Air Costa is now facilitating 100 per cent refund of the fare and re-booking facility for the passengers.
Kavi Chaurasia, vice president, marketing and communications, Air Costa states in media: “We’ve just halted for a day owing to the financial issues with our leasing firms. We are negotiating with them. There was nothing specific and we want to get rid of the issue as soon as possible so that we can start operations tomorrow. I’m 100 per cent sure that we’ll be resuming operations from Friday. These issues are bound to happen for a start-up airline. There are absolutely no issue regarding salaries in Air Costa.” He, however, did not give further information on the issues and leasing companies.
“There is no comparison with Pegasus. They had different issues altogether. They even applied for de-listing. Whereas, we want to expand for pan-India presence.” By the end of this calendar year, Air Costa intends to add two more aircraft to its current three Embraer 190 aircraft, as per Kavi Chaurasia.
While the airline claimed it will resume flying, past stories of a cash crunch and unpaid salaries along with the overall financial struggles of regional carriers have cast doubts on Air Costa’s survival.
The twin stories of Air Pegasus and Air Costa have emerged barely two months after the government launched its ambitious regional connectivity scheme. Even as the government is optimistic that the new civil aviation policy cleared on 15 July 2016 will boost regional connectivity and take flying to the masses, experts believe that it’s not possible because regional airlines are inherently unprofitable. Any new airline may not be able to make a profit overnight. They need to be initially financially sound and secured, need to create a network and feed for making money from the potential new market.
It appears that the only way such regional airlines can survive is by means of a viability gap funding by the government. But, even in that scenario, doubts shall remain over the logic of operating such an airline.
The crisis among regional carriers is coming to light as the government is in the final stages of unveiling a regional connectivity scheme. Civil Aviation Secretary Rajiv Nayan Choubey said regional carriers should be able to configure their business model to meet their financial commitments. “They now operate in a market environment. Under the regional connectivity scheme, they will operate in a protected environment,” he added.