Companies & Sectors
Domestic airlines need to fend for themselves as there are no rescue plans!

The government has no plans to come to the aid of the overtaxed, loan-burdened, distressed and non-profit making domestic airlines sector

 

At a press conference, Civil Aviation Minister, Ashok Gajapathi Raju, emphatically stated that the Indian government has no plans to come to the aid of the overtaxed, loan-burdened, distressed and non-profit making domestic sector. He was accompanied by GM Siddeshwara, Minister of State.

 

All that the Government could do, while admitting that the state taxes on the Aviation Turbine Fuel (ATF) was high, was to seek the state governments to consider and make a reduction. At the moment, ATF taxes varies from state to state and ranges from a mere 4% to as high as 30%. He is reported to have further stated that requests have been made to the state governments in this regard. Not all of them have responded favourably, but, presumably, when this eventually starts affecting passenger traffic and airlines start rescheduling their flights, some reasonable reduction is likely to result!

 

In the meanwhile, good news has come from Go Air, which was launched in 2005 and has currently 13 planes in operation. As against this, Indigo, has a fleet of 78. It was launched in August 2006 and is India's largest in terms of passengers carried. SpiceJet was launched in May 2005 and has a fleet of 53 planes. Except for Go Air, all others have shown losses so far, with the accumulated losses in seven years amounting to $10.6 billion. One of the main reasons why Go Air has shown a profit for the fiscal 2014 is due to better aircraft utilisation, as it has achieved 13 hours use per day against the industry average of 11 hours.

 

Air Asia, which was launched a few months ago, recently confirmed that they are posting "operating profits". However, CAPA - Centre for Asia Pacific Aviation, in a report, claimed that Air Asia had, in fact, incurred a loss! With a flight load of over 80%, adding five new A 320s, Air Asia is reportedly doing well and it remains to be seen, at the end of the financial year, if it has truly achieved a brake even or made a marginal profit.

 

SpiceJet, on the other hand, has begun to reduce its international operations and is concentrating on the domestic sector. It has continued its marketing strategy of "early bird" scheme, where the ticket prices are as low as Rs499 on its domestic network. For the time being, it seems, it has decided not to add any more capacity. But it attempts to increase its load factor.

 

It may be recalled that the Federation of Indian Airlines, consisting of Air India, Jet Airways, IndiGo, SpiceJet and Go Air had made all possible attempts to stop Air Asia and Tata SIA Airlines (now known as Vistara) from being given licence. Other new airlines like Air Costa and Zav have not yet announced if they intend to join the Federation or remain non-committal.

 

Instead of putting obstacles in the way of Air Asia, Vistara or any other airline that may wish to enter the Indian skies, the Federation of Indian Airlines ought to divert its attention and energy to tackle much vexed issues like the taxes on ATF and get it reduced to realistic levels. It will also be in the industry's interest to take care of passenger safety, comfort and better amenities. They should also be able to negotiate better banking terms to reduce interest charges by assuring the lenders of prompt, timely and regular repayment schedules.

 

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)

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COMMENTS

VIJAY MERCHANT

3 years ago

Today air travel in India has become a necessity for millions of citizens as alternative travel by road or rail is not convenient. If the two major airlines JET and Spice Jet stumble and fall due to huge losses the costs to citizens will be huge. Jet has some 3000 flights and reaches almost 75 destinations and Spice Jet maybe touching 50 destinations.The minister may have to re-look at the taxes burden on fuels in India plus the revised airport taxes which have made operations costly since last few years. A modern India badly needs fast and efficient connectivity both for locals , business and the millions of tourists. Let us not see the assets created by entrepreuners who have built our air network get washed away due to policy errors of the past and lack of vision of some leaders. Wise leaders need to sit with industry and find a survival path ahead soon.

RBI says management, group companies can also be named as wilful defaulters

In cases where guarantees furnished by the companies within the group on behalf of the wilfully defaulting units are not honoured then such group companies should also be reckoned as wilful defaulters, says RBI in a clarification

 

The Reserve Bank of India (RBI) on Tuesday issued clarification on its guidelines on wilful defaulters. Accordingly, it said, banks can name company management as wilful defaulters. Similarly, group companies of a defaulting company can also be termed as wilful defaulters, the central bank said.

 

"While dealing with wilful default of a single borrowing company in a group, the banks and financial institutes (FIs) should consider the track record of the individual company, with reference to its repayment performance to its lenders. However, in cases where guarantees furnished by the companies within the group on behalf of the wilfully defaulting units are not honoured when invoked by the banks/ FIs, such group companies should also be reckoned as wilful defaulters,” RBI said in its clarification.

 

According to the new clarification, guarantors who refuse to pay will also be treated as defaulters. RBI said, "when a default is made in making repayment by the principal debtor, the banker will be able to proceed against the guarantor/surety even without exhausting the remedies against the principal debtor. case the said guarantor refuses to comply with the demand made by the creditor/banker, despite having sufficient means to make payment of the dues, such guarantor would also be treated as a wilful defaulter."

 

The central bank, however clarified that these norms would be applicable only prospectively. "It is clarified that this would apply only prospectively and not to cases where guarantees were taken prior to this circular. Banks/FIs may ensure that this position is made known to all prospective guarantors at the time of accepting guarantees," RBI added.

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COMMENTS

Ravindra

3 years ago

This is a welcome step in the RIGHT DIRECTION. The BANK LOANS are many a times utilised for a group Company or for building OWN PROPERTY. This regulation will be a deterrent for such misuse. Needless to say it will be one more step forward if the ASSETS of the Group Companies and the DIRECTORS should be frozen as soon as the chargesheet is filed. It may need an Amendment to rules which the Government should carry out. The voting on such Amendment will show who are HONEST and who are DISHONEST or stand by the DISHONEST.

Veeresh Malik

3 years ago

To some extent, the guarantor does not have many of the "protections" that a promoter may be able to use to delay or resolve issues under the present laws at SAFRAESI. This is going to be interesting.

Equity mutual funds report a net inflow for the fourth consecutive month, in August

Though the net inflow was lower compared to the past couple of months, equity mutual funds report a net inflow of Rs5,364 crore in August 2014

 

Equity mutual funds recorded another month of net inflows. Not surprisingly, the stock buying by mutual funds in August 2014 reached a record high. Mutual funds in August 2014 bought Rs5,847 crore of equities, the highest in the past eight years (Read: Mutual funds bought Rs5,847 crore of stocks in August 2014, highest in over eight years). The record stock buying was supported by the Rs5,364 crore net inflow in to equity schemes. Investors have been on a buying spree over the past four months. While net inflows peaked to Rs10,945 crore in July 2014, in August net inflows were considerably lower due to lower sales.

 

Net sales of equity mutual fund fell to Rs10,340 crore in August 2014 compared to Rs17,634 crore in July 2014. Redemptions too were lower in August. In fact, it was the lowest in the past six months at Rs4,976 crore. As many as seven new fund offers were launched, bringing in Rs1,229 crore.

 

According to CRISIL Research, equity mutual fund assets soared 6.01% to Rs2.67 trillion in August steered by both inflows and mark-to-market (MTM) gains. With the rally in equities stoking interest, the category clocked inflows for the fourth straight month at Rs53.64 billion. To be sure, that’s lesser than the Rs8.45 billion seen in July, but consolidated inflows since the beginning of 2014 now stand at Rs242.98 billion. The CNX Nifty Index, which is the underlying asset class for this category of mutual funds, gained 3.02% in August on positive domestic and international cues.

 

Conversely, just like in July, August also saw heavy redemptions from income funds. Sentiment for the category dampened after the Union Budget on July 10, when the long-term capital gains tax on debt-oriented mutual funds was doubled to 20% and the definition of 'long term investment' was tripled to 36 months. Nearly Rs13,000 crore flowed out of equity mutual funds.

 

Overall, during the current financial year so far (April-August), MF on a net basis have mobilised around Rs3 lakh crore compared with Rs53,783 crore garnered in the entire 2013-14 fiscal.

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