In Naresh Goyal's Jet Air, the 24 per cent stake sale to Abu
Dhabi's Etihad Airways, there is a hidden message! Etihad's stake buyout into
Jet was approved today and brings in approximately $379 million of direct
equity resources to the company.
The financial and equity tie up with Etihad implied Jet has
given up its aspiration to join global alliances, at least for the moment. Jet
Airways since 2009 was an aspirant to become a Star Alliance member. None of
the large gulf carriers are presently members are any of the alliances and have
shown little inclination to join any of the three – Star Alliance, SkyTeam or
One World Alliance. Large gulf aviation companies, Emirates and Etihaad are
pursuing their own partnerships, independent of the alliances. The exception is
the Qatar Airlines that joined One World on October 29, 2013.
None of the Indian carriers though are members of any of the
global alliances. The only private sector
airline to pursue entry into a global alliance was Kingfisher. Kingfisher had
sought entry into OneWorld though even that was thrown out despite Economic
Times disinformation in November 2011. Kingfisher's virtual ejection from OneWorld alliance was driven by the company's insolvency and financial delinquencies.
Jet's virtual quit from the race to enter the alliance paves
the national carrier Air India's entry into Star Alliance and partnering with
Lufthansa. Air India though still would
have to clear some hurdles before the entry to alliance materializes. Air
India's entry into Star Alliance was put on put in abeyance by the Star alliance
executive council, (comprising of chief executives of the member airlines) on
July 31, 2011 on the grounds that the carrier had failed to comply with some of
the conditions to join the alliance. However, it was widely suspected in the
entire Indian aviation industry that Air India's entry into the alliance was sabotaged by rival
carriers, with the prime suspect being Jet Air.
Air India since then however has overcome most of its financial
troubles with support from its single stakeholder, government of India, and the
acquisition of new Boeing aircraft. Since the beginning of last year, Air India
has consistently operated at passenger load factors of 82 per cent, but still
some distance away from the domestic industry's best airline, Indigo's 87 per
cent. But Air India was far ahead of Jet and Spice jet both of whom are dogged
by losses.
Air India operating ratios this year could be well below 100
as low as 97 per cent, meaning operating incomes would be in excess of operating expenditure. Though that could mean operating profits, the national
carrier would still need capital support from the government to the extent of $
2.6 billion (Rs 16226 crore) over the next four years to wipe out accumulated
losses of over $1.2 billion (Rs 7500 crore). Other revenue sources are also likely to come
through, if Air India manages to divest some equity from the MRO (maintenance,
repair and overhaul) business and lease surplus carriers to other operators,
including emerging domestic operators. Both these options are on the table for
Air India.
The situation however is not similar for the private sector
players. Private sector players unlike Air India are far more vulnerable,
especially since their costs, barring those to domestic employees and airport
charges, are mostly dollarized. The entire fleets of domestic carriers are
leased, linked to floating rates and benchmarked to LIBOR. That means with the
currency depreciation, operating ratios have deteriorated, translating to lower
profits. The result is both Jet and Spice Jet are staring at red lined balance
sheets. But losses also mean raising equity funds become difficult. All debt
funded carriers face a Kingfisher predicament, with air assets spending more
time on the ground than on the air.
For the Maharaja, it is time to twirl the whiskers and smile
again. Good times after all are beginning to return!
