Global body says Indian aviation sector ‘in crisis’

India’s major carriers lost close to $2 billion in the last fiscal year to March 2012 and are carrying debts of $20 billion, International Air Transport Association (IATA) chief Tony Tyler said.

“India’s aviation is in a multi-faceted crisis. Before the aviation sector can deliver greater benefits to the Indian economy, this crisis must be resolved,” Tyler told a business audience in New Delhi.

India’s airline sector was once vaunted as a symbol of the country’s economic vibrancy. But its fortunes have nosedived due to over-expansion, inadequate infrastructure, intense competition, expensive fuel and other costs.

While the industry is growing, it is not doing so profitably, Tyler noted. Of India’s six main carriers, only privately owned Indigo is making money.

“The financial situation of Kingfisher (owned by Indian liquor baron Vijay Mallya) is dire and (state-run) Air India is on government life support,” he said.

Kingfisher owes vast sums to banks, suppliers and staff and has halted international operations to curb costs while the government has given Air India commitments of nearly $6 billion in assistance.

Tyler called for coordinated government and private sector policies to nurse the sector back to health, saying among the steps needed was a reduction in huge charges at Indian airports.

Regulatory authorities recently approved a massive 346 percent increase in charges at Delhi airport — adding more than $400 million in costs for airlines, Tyler noted.

The government is considering allowing foreign airlines to take stakes in domestic carriers — a step airlines such as Kingfisher see as a potential lifeline.

But if “critical domestic problems are not addressed, investors — foreign, domestic aviation or otherwise — will not be lining up to put their cash in Indian airlines,” Tyler warned.

“Under current circumstances, investors cannot see how they could ever see a return,” he said.

He also said the government needed to take “tough decisions” to restore Air India to solvency and pointed to the example of state-run Japan Airlines (JAL) which chopped 50 routes and 16,000 jobs to emerge from bankruptcy.

The country of 1.2 billion is “an area of huge opportunity” for carriers as the average Indian takes only one airplane trip every 10 years compared to the average American who takes two trips each year, Tyler said.

But it is a potential “at risk of being left unexploited because of problems of high taxes, high costs and poor policy coordination developing the sector, he said.”

India now has a market of around 100 million passengers annually but if Indians took as many trips as Americans, it could total over two billion travellers, Tyler said.