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India's Aviation Sector Faces Financial Crisis

  • Anjana Pasricha

India's national carrier, Air India, is deferring the payment of staff salaries to cope with a credit crunch.

When Air India recently announced that salaries for July will be paid two weeks late to its 30,000 staff, angry staff members threatened a nationwide protest.

But the airline management says it has little choice in light of the financial crisis it faces.

The airline incurred losses of $800 million last year.

Others have faced losses

Government-owned Air India is not the only one reporting massive losses. A number of private airlines, which set up shop in the last five years hoping to benefit from a growing economy, are also struggling with high debt and huge losses.

The federal government has promised a bailout package for Air India.

Rajesh Menon at the Confederation of Indian Industry says other airlines are also asking the government to consider measures that will help them reverse the decline in profits.

"There is an issue of financial viability of the way airlines are functioning," said Menon. "There is a discussion already going on with the Government of India trying and seeing the way there could be support mechanisms in this regard … there is an issue on taxation which at least if it could have been sorted out it would have been a little more viable."

Government aid

The industry, for example, is hoping for reduction of taxes on jet turbine fuel, which is the most expensive in India. It also wants the government to allow foreign airlines to buy equity in domestic airlines to give them access to fresh capital.

Like the aviation industry worldwide, the crisis in India was triggered by the high rise in fuel prices, and declining passenger traffic.

Domestic air traffic in India fell by 15 percent in April compared to the same month in the previous year, continuing a steady decline in recent months.

Affordable travel

This has hit hard a sector that expanded massively until 2007 on forecasts that passenger traffic would grow as increasing affluence made air travel more affordable. Many airlines bought new jets. Air India, for example, is taking delivery of 26 new aircraft this year.

But many aircraft are flying with empty seats as costlier fares have prompted people to cut back on both business and leisure travel. And the global economic downturn has worsened the situation.

A recent report by the Center for Asia Pacific Aviation says losses for the fiscal year that ended in March this year could double from the previous year's losses of $ 1.75 billion.