NDTV Explainer: The Challenges India's Aviation Industry Is Facing

Defending himself during a court hearing on September 12, Jet Airways founder Naresh Goyal said the aviation sector runs on bank loans and all the funds cannot be termed as money laundering.

NDTV Explainer: The Challenges India's Aviation Industry Is Facing

Like Jet Airways, many other airlines that once operated in India and are now defunct.

New Delhi:

In recent developments in the Jet Airways case, the Enforcement Directorate (ED) seized Rs 538 crore worth of properties in an alleged money laundering case linked to Jet Airways (India) Ltd.

Naresh Goyal, founder of Jet Airways was arrested on September 1, and lodged in Arthur Road Jail in Mumbai in the recent seizure of properties his wife Anita Goyal and son Nivaan Goyal have also been named in the investigation.

The ED alleged that Mr Goyal siphoned off money by creating trusts in other countries to buy immovable properties. Citing an audit report, the ED said the loans taken by Jet Airways were used to buy furniture, apparel, and jewellery, apart from properties. Defending himself during a court hearing on September 12, Mr Goyal said the aviation sector runs on bank loans and all the funds cannot be termed as money laundering.

Jet Airways, one of the biggest airlines that operated on domestic and international routes, had to become defunct due to a lack of funds. The story goes the same for Kingfisher Airlines, Go Air, Air Carnival, Air Costa, Air Pegasus, and Air Mantra.

What Went Wrong With These Airlines?

Several challenges plague the aviation sector:

  • Fuel Costs: In India, the cost of Aircraft Turbine Fuel (ATF) can account for a staggering 50-70 per cent of an airline's operational expenses. With VAT on ATF reaching up to 30 per cent and additional import taxes, it's a substantial burden.
  • Dollar Dependency: Fluctuations in the dollar rate against the Indian Rupee can severely impact profits since major expenditures like aircraft acquisition, maintenance, and lease costs are dollar-denominated.
  • Cutthroat Pricing: To attract passengers, airlines in India often resort to dramatically slashing ticket prices, making it challenging to balance the books, especially when operational costs remain high.

Understanding India's Aviation Industry

The Indian Aviation Industry is one of the fastest growing in the world, it was valued at $20 Billion in 2020 and is projected to double by 2027. India has 137 airports which include 103 Domestic Airports, 24 International Airports, and 10 Customs Airports.

In 2022, 123.2 million passengers flew in India which was 47 per cent more than the last year. On April 30, earlier this year the Industry saw an all-time high when 4,56,082 passengers in a single day on 2,978 flights.

Meanwhile, the whole industry is being operated by just 660 aircraft mostly narrowbody jets (Boeing 737s and Airbus A320s). Out of the 660 planes,

  • Indigo: 319
  • Air India: 121
  • SpiceJet: 63
  • Vistara: 61
  • Air Asia India: 30
  • Air India Express: 26
  • Akasa Air: 19
  • Alliance Air: 21

Apart from these currently operating fleets, Air India and Indigo have placed massive orders for new aircraft. 

why airlines in India are failing?

Go First also known as Go Air, is one of the most recent airlines that has been grounded citing the shortage of funds and lack of supply of parts from Pratt and Whitney (Engine manufacturers for the Airbus A320 owned by Go First). The story is similar for Jet Airways, Kingfisher, and many other airlines that once operated in India and are now defunct.

Jet Airways, India's oldest private airline, got caught up in a takeover bid for Air Sahara. In the following years, Jet Airways' efforts and money spent on reviving Air Sahara were understood to be the reason that it had to sell nearly a quarter of the company's stake to Etihad Airways. Apart from that, competition from the newly launched low-cost carriers, and extra costs that incurred from operating a mixed fleet of aircraft.

From having a 44 per cent market share in 2004, Jet Airways ended 2018 with only a 15.5 per cent market share. From a net profit margin of 4.5 per cent in 2004, the losses started in 2008 and never ceased, the exception being in 2017 and 2018 when the airline benefitted due to extremely low fuel prices. 

Debt levels increased from Rs 2,631 crore in 2005 to Rs 14,280 crore in 2010, and Rs 8,500 crore in 2018. The net worth of the airline turned negative in 2012, and it never recovered.

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