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Aviation Industry’s landings and take offs

31 July 2019

The sector of our economy which has suddenly twisted and turned to make a spectacle of itself. Be it the downfall of Jet Airways or the meteoric rise of Indigo Airlines, or the opening and closing air spaces over Pakistan. The sector has presented investors and traders with many opportunities and avenues of earning.

While there were times when the industry was grappling crisis situation, the shadows have cleared somewhat over it with settling of disputes. Another positive for the industry was finance minister Nirmala Sitharaman’s announcement to make India a ‘global hub of aircraft financing and leasing activities’ which also raised the spirits of this industry.

Jet Airways and Indigo Airline

Jet Airways which started its journey in 1992, came out with its IPO which was subscribed by various FIIs, Mutual Funds, and Insurance companies to a large extent. This airline having only targeted the premium flyers, and to keep up its market worth started making certain fatal decisions, which led to its excessive borrowing and expenditure. Jet airlines also never stopped taking debt from the financial market. Not being able to find investors in its bad times it had to shut down its business.

On the other hand- the Indigo airlines, which began a humble start in 2006, shot through the airspace like a meteor, by targeting middle-class employees as well as high end corporates. As the Jet Airways cut down operations, Indigo soon enough stepped into its shoes only to cater to every category of fliers. Its profits rose along with its Available Seat Kilometer (ASK). Other things which worked in its favor were its punctual timing of flights, the quality of service it offers and the way in which it never missed on the upcoming opportunities.

However, the airline also hit the wrong notes due to a spat between its owners Rakesh Gangwal and Rahul Bhatia. A complaint was made before the Securities and Exchange Board of India (SEBI) by Gangwal raising complaint relating of corporate governance rules.

Pakistan Airspace Management opening its airspace

Apart from the negatives which took down Jet Airways, the positive aspect for the industry was the opening of airspace over Pakistan by Pakistan Airspace Management for Indian aircrafts. Due to the airspace over this part being closed for Indian aircrafts for 140 days, the aviation industry had to spend more than Rs. 6500 crores. Also, certain flights to international destinations could not be started because of the airspace being closed. With the opening of this airspace, the aviation industry can also restart a few flights that had been initially stopped due to the heavy costs of keeping them functional.

Aircraft financing and leasing from India

"As the world's third largest domestic aviation market the time is ripe for India to enter into aircraft financing and leasing activities from Indian shores. This is critical to the development of a self-reliant aviation industry, creating aspirational jobs in aviation finance, besides leveraging business opportunities available in India's financial special economic zone namely International Financial Services Centre (IFSC). Government will implement the essential elements of the regulatory roadmap for making India a hub for such activities," Sitharaman had announced in her budget.

The move would help Indian Aviation Industry earn more by leasing out its aircrafts, since 76% of aircrafts flown in India are operating on lease.

The aircraft maintenance is also done in foreign countries and hence the government of India’s focus is also on maintenance and repair operations to be conducted from India.

According to a report by Business Standard, passenger traffic is expected to grow six fold annually to around 1.1 billion by the year 2040 while fleet size is expected to grow from 620 aircraft last March to around 2350 planes in March 2040, the ministry said its report. Plane makers Airbus and Boeing estimate India would need 1750-2100 planes valued over $ 290 billion in next twenty years. This translates to around hundred plane deliveries each year requiring $ 5 billion financing each year, it said.

Conclusion

With all the downfalls the industry has recently witnessed these positives although might not be enough to compensate for all the wrongs but seem big enough for one to have bullish hopes in the months going forward for the Indian aviation industry.

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