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Ministry considering infra status for airline

The Ministry of Civil Aviation (MoCA) is looking at writing to the Finance Ministry to accord infrastructure status to the airline industry. The measure, if approved, would provide much needed reprieve to cash-strapped airlines are struggling to stay afloat amid high operating costs in the domestic industry.

“We are looking at writing to the Ministry of Finance to accord infrastructure status to the airline industry. This would help airlines in raising much required capital for sustaining operations”, informed a senior ministry official who did not wish to be identified.

The grant of infrastructure status to airlines would enable them to raise money from the market through issue of tax-free bonds or through external commercial borrowings (ECBs). “The grant of infra status to airlines would enable them to raise money in two ways. They can issue tax-free bonds. Airlines can also opt for ECBs at low interest rates to raise required capital”, added the official.

According to estimates available with aviation advisory firm Centre for Asia Pacific Aviation (CAPA) Indian airlines are set to lose $ 1.3-1.4 billion in the current financial year as compared $ 1.7 billion in 2013-14. In the last seven years, accumulated losses in the industry have reached $ 10.6 billion.

At the end of March 2014, Indian airlines had $ 585 million (Rs 3250 crore) of cash on hand. With annual industry turnover in excess of $ 10 billion, this represented the equivalent of less than three weeks of revenue, CAPA said in its report. Airlines, with the exception of IndiGo (the only one to have maintained steady profit), $ 1.6 billion of unding this year just to sustain their business models.

In fact, a close study of the financial data filed with the stock exchange and the Ministry of Corporate Affairs (MCA) show that for the year ended March 2014, India’s top five domestic airlines reported combined losses of Rs 9,737 crore, an increase of 85 per cent compared with Rs 5,276 crore in the previous year.

But for IndiGo and GoAir’s combined net profit of Rs 323 crore, the losses would have stood at Rs 10,060 crore.

More than half the overall losses were accounted for by those reported by Air India. The state-owned airline’s net loss declined marginally to Rs 5,388 crore in FY14 from Rs 5,490 crore the previous financial year. While Jet Airways’ net loss rose about sevenfold to Rs 3,668 crore, SpiceJet’s increased about four times to Rs 1,003 crore.

Experts said a rise in fuel costs, as well as currency depreciation, hit the earnings of all domestic carriers. While the losses of Jet Airways, Air India and SpiceJet widened in the last financial year, IndiGo’s profit dropped 60 per cent to Rs 317 crore. Wadias-promoted GoAir saw its net profit slump to Rs 5.44 crore from Rs 104 crore in FY13.

The decline in IndiGo’s profit was despite the airline registering a 17.5 per cent increase in revenue at Rs 11,117 crore (indicating higher operating expenses). For FY13, the airline had recorded a net profit of Rs 787 crore on revenue of Rs 9,458 crore. For GoAir, too, the sharp drop in net profit was despite its operating revenue rising 26.7 per cent to Rs 2,435 crore in FY14 from Rs 1,921 crore in FY13. GoAir’s earnings before interest, tax, depreciation and amortisation halved to Rs 129 crore, again pointing to an increase in operating expenses. For FY14, it recorded a pre-tax profit of Rs 8.37 crore, against Rs 147 crore in the previous financial year.

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