FUTURE DEVALUED FOR AIRLINES IN INDIA AS THE REGULATORS FORCE A REDUCTION IN PRICES AS BOEING LENDS A HELPING HAND

Dino D'Amore
By Dino D'Amore December 6, 2010 10:33

FUTURE DEVALUED FOR AIRLINES IN INDIA AS THE REGULATORS FORCE A REDUCTION IN PRICES AS BOEING LENDS A HELPING HAND

Airlines operating within India will today have the same cost base that they had on Friday but they will now be cutting yield per passenger across a range of domestic routes.

One of the key aspects of the commercial aviation recovery has been the increase in ticket prices. So it is with surprise that the authorities in India should decide to damage their already struggling commercial aviation sector further by clamping down on ticket prices. The intervention of the Directorate General of Civil Aviation (DGCA) has resulted in the slashing of airfares by up to 20-25%. On Saturday (December 4) DGCA chief Bharat Bhushan met with the CEOs of IndiGo, SpiceJet and GoAir and instructed them to determine tariffs fairly and then effectively gave the airlines a new pricing range for the main domestic Indian routes. The airlines had proposed a distance based fare structure (as you would expect) that remained competitive in the new post credit crisis economy. So as a result the fare range from Delhi to Hyderabad is now between Rs5,000 to a maximum of Rs13,000 from a range of Rs17,000 to Rs25,000 (at published prices).

This move by the Indian government adds a highly significant level of red tape to what is already one of the closest-governed and highly-taxed commercial aviation markets in the world. Potential creditors/investors will look on with dismay and wonder if they can ever seriously help airlines desperate for cash such as Kingfisher, Jet and Air India.

In another twist which hints further at problems Air India Express, the low-cost arm of the national carrier Air India, has tendered for the dry lease of four Boeing 737-800s. Nothing out of order there, but on closer inspection one can see that the author of the online tender document is none other than one Michael R Sessions of Boeing.

This a case of a manufacturer directly helping an airline put up a tender for which it or one of its affiliates could be in the race, making the whole thing a bit pointless. Air India has now indicated that it turned to Boeing for help as the specifications for new aircraft keep changing and new aircraft are sought. At the last board meeting the minutes showed that there was opposition to further leasing of aircraft so someone will not be happy. In addition, this is a dry lease so crew will need to be found, at the moment the airline is canceling flights as it does not have the requisite crew to operate the same.

Air India itself will be leasing a total of 57 aircraft over the next few weeks, at the same time it is claiming $840m in damages from Boeing for the delay of the 787. Anyone looking to see where the money to pay for the leases will come from need look no further.

See APAC section for more details of the lease tenders and Boeing claims for Air India.

Indian aviation has reached so high so very fast and now post credit crisis it is business as usual in the board rooms but the liquidity is not there to back their plans. 2011 will be very interesting indeed for Indian aviation and a rollercoaster ride for those investing in the same.

Dino D'Amore
By Dino D'Amore December 6, 2010 10:33
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