Indian Civil Aviation Firms – Why they keep Crashing before reaching heights

Jet Airways, India’s second-largest carrier came to a screeching hall on April 18, 2019. Due to
operational and financial issues, Jet Airways had to ground all the aircrafts, suspend all
operations indefinitely, and ask for a rescue of the airline. The third largest carrier. Air India was
already under financial duress and was able to remain afloat due to the generous support of the
public exchequer only However, this was not the first time that Indian civil aviation sector is
facing the bad weather. However, the magnitude of crisis might raise a few more concerns.
The history of Indian civil aviation is older than what most people would imagine. The first
commercial flight in India too place in 1911 and the first international service began operation in
1915 between Delhi Karachi London. In fact, India had an aircraft manufacturing private
company as early as 1940, later on nationalized as Hindustan Aeronautics Limited. Between
1933 and 1934 at number of Indian airlines-Indian Trans Continental Airways, Madras Air Taxi
Services, and Indian National Airways etc commenced operations. In March 1953, the Indian
Parliament passed the Air Corporations Act. As a result, eight independent domestic airlines:
Deccan Airways, Airways, India Bharat Airways. Himalyan Aviation. Kalinga Airlines, Indian
National Airways, Air India. Air Services of India were merged to establish Indian Airlines and
Air India International.
The drought of action in Indian civil aviation ended with the liberalization era. In 1991, the
East West Airlines became the first national level private airline to operate in the country after
almost 37 years. In 1994, several private players including Jet Airways, Air Sahara, Modiluft,
Damania Airways, NEPC Airlines and East West Airlines commenced domestic operations. By
1995, 42 airlines operated air services to, from, and through India. However, the good run of
these full- service careers ended soon with only a few surviving. The only major names were Jet
airways. Air Sahura, and the twin public carriers.
The real boom in this sector came during the decade of 2000s and continued into the second
decade despite regular hiccups (See chart 1 below). The decade saw newer airlines, particularly
the no-frills low-cost carriers, renewed and more airports, private developers, FDI in aviation,
and an emergent upper-middle class. The decade is now remembered for the 2008 financial
crisis; however, till before that, the oil prices were low and capital prices were relatively low.
Therefore,
it was the ideal time to invest in a booming economy like India and in industries, which depend on
heavy capital expenditure and are sensitive to oil prices.

The decade began with Air Deccan starting in 2003 and quickly grabbing the market share
with making air travel possible for the middle class. However, it expanded too fast and ran too
many promotions for price-sensitive customers. As Air Deccan ran into heavy losses, it was sold
in 2008 to the new full-service entrant. Kingfisher airlines and became the no-frills extension of
it by the name Kingfisher Red. Similarly, the erstwhile full-service carrier, Air Sahara ran into
continuous operational losses and was sold to Jet Airways in 2008. Recognizing the potential of
the no-frill airlines, Jet Airways did not dismantle or absorb Air Sahara. It was rather renamed as
JetLite and was converted into the no-frill extension of Jet Airways. The other no-frill carriers
also continued in the market with limited routes and smaller fleets. These included Go Air
(2005), SpiceJet (2005), IndiGo (2005), Paramount Airways (2005-2010), MDLR (2007-2009).
The twin government carriers, Air India International and Indian Airlines, also merged in 2007
to form Air India. The next set of entrants came in the next decade and included Vistara (2015)
and Air Asia India (2014). Giving the sector a further boost, the government of India launched a
schemed called UDAN (meaning flight, an abbreviation of Ude Desh ka Aam Nagrik or let the
common citizen fly) in 2017. The scheme targeted to create 100 new airports in the ensuing five-
year period. While Indian civil aviation market was the 9th largest in the world in 2010, it grew
heavily during the decade and became the 3rd largest in the world by 2018. According to
Indian Brand Equity Foundation (2019) India’s passenger traffic grew at 16.52 per cent year
on year to reach 308.75 million in FY18. It grew at a CAGR of 12.72 per cent during FY06-
FY18. India’s domestic and international
aircraft movements grew 14.40 per cent YoY and 9.40 per cent YoY to 1,886.63 thousand and
437.93 thousand during 2017-18, respectively.
However, as always, there was a crash waiting to happen before reaching the desired heights.
Jet Airways had been looking for a capital infusion since 2013 due to expansion plans and
operating losses While the sector was doing immensely well, Jet Airways kept on staring at
mounting losses. Some acquisition bids by domestic companies like Tata group and international
players like Etihad faltered due to the major shareholder’s refusal to cede control. In the face of
mounting losses, unpaid salaries, and lease payments, Jet Airways came to a standstill on April
18, 2019. On the other hand, Air India was also under pressure of losses and an aging fleet,
requiring replacement soon.

It may seem like a golden opportunity for the surviving players to get two of their major
competitors get out of their way. However, IndiGo, GoAir, and SpiceJet were facing their own
demons. Increased traffic often tests limits of efficiency and increases the chances of a domino
effect wrecking the operations. Moreover, the technical glitches have created more severe issues
for all the airlines. IndiGo and GoAir have been facing problems with P&W engines powering
their A320 family planes. There have been many instances of mid-air engine shutdowns as well
as smoke filling the cabins.
Similarly, SpiceJet operates 12 aircrafts of Boeing 737 Max & type, representing 20% of their
operational capacity. This aircraft type got a worldwide. Ban due to technical glitches after
causing two crashes for Lion Air Malaysia and Ethiopian Air- lines. The soaring oil prices,
touching $100 per barrel, were an issue beyond the airlines control. Anyway, the prolonged
closure of airspace over Pakistan, growth or turbulence in the domestic economy, and emergent
dynamics of the Indian aviation policy continue keeping the airlines on the edge of the cliff.

Questions for Discussion and Analysis:

1. Why does Indian civil aviation sector keep facing the ups and downs? Is it a sectoral
reality for every country worldwide or a problem of Indian companies?
2. Does government policy cause or contribute to the turbulence in the Indian civil aviation
sector? What may be the other factors contributing to the problem?
3. Should the government infuse funds to make Airline business sustainable? What are the
arguments for building up airports but not giving the same funds to the airline operators?
4. Is it really good to have a strong competition? Why the seemingly golden opportunity for
the surviving players may be bad for sector, passengers, as well as the surviving players
themselves?
5. Do you think the Indian civil aviation companies have lacked imagination? What are the
innovations or best practices they need to adopt from the others in the business?
6. Knowing the history of companies crashing out regularly, would you like to start your
own aviation firm? What are the precautions and nuances would you like to consider
before taking the plunge?