‘Airlines must overhaul contracts to survive’
NEW DELHI: Indian carriers will need to take tough measures to survive the second wave of the pandemic, especially keeping a tight leash on costs by renegotiating contracts with vendors and aircraft leasing firms, said industry experts.
The carriers would also need equity infusion from promoters to improve their financial health.
Airlines, especially those with weak balance sheets, are at the mercy of aircraft lessors and would require structural changes as business and leisure travel that typically bring in higher yields will take some time to recover, said a senior aviation analyst in a foreign brokerage.
“Even if some airlines are able to pull through the crisis by racking up debt, they will face an uncertain future as recovery of the sector—to a point where airlines can make profit—is at least a couple of years away,” the analyst said, requesting anonymity.
A recovery of India’s air passenger traffic could be delayed by at least 9-12 months due to the second wave of Covid-19, HSBC Global Research said in a recent report.
“Although the vaccination programme could boost demand a little, the Covid-19 spread is far wider this year. The recovery last year was much stronger in tier-2 and tier-3 cities since the impact of Covid-19 was less there but the impact this year is much more severe across India,” HSBC said, adding that it expects 80 million domestic passengers this fiscal, a 44% decline from FY20 before Covid struck.
Meanwhile, airlines such as Indigo and Spicejet have started desperate measures such as leaves without pay and deferring salaries of a section of their employees.
While Indigo has reimposed compulsory leave without pay for all its employees, Spicejet has reverted to a salary structure based on the hours worked. It has also deferred salaries for May for a large section of its workforce.
“Airlines will need fund infusion from promoters or will need to raise debt,” a senior industry official said, requesting anonymity.
Meanwhile, in an effort to offer relief to the aviation sector, the government has extended the Emergency Credit Line Guarantee Scheme (ECLGS) to airlines.
Under ECLGS, which is for helping companies tide over liquidity crunch resulting from Covid curbs, banks provide additional loans to existing borrowers without asking for extra collateral.
To encourage banks, these loans are fully guaranteed by the government against credit losses.
Liquidity is key for airlines as some are facing closure of their businesses following grounding notices and other lawsuits, said Satyendra Pandey, managing partner at aviation advisory firm AT-TV.
While airlines like Indigo and Tata Group-backed Vistara and Airasia India are well placed in terms of funds, the ECLGS is targeted towards weaker airlines, said Pandey, who had earlier worked with Capa India and Goair.