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    10 key takeaways from aviation sector in 2019

    10 key takeaways from aviation sector in 2019

    10 key takeaways from aviation sector in 2019
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    By Anu Sharma   IST (Updated)

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    The year of 2019 witnessed a host of important developments in the Indian civil aviation space from the temporary but indefinite shutdown of Jet Airways to an unprecedented corporate war between the two promoters of IndiGo.

    The year of 2019 witnessed a host of important developments in the Indian civil aviation space from the temporary but indefinite shutdown of Jet Airways to an unprecedented corporate war between the two promoters of IndiGo.
    The year also saw airlines inducting capacity in a hurry amid the desperation to get hold of Jet Airways slots at busy airports of Delhi and Mumbai. SpiceJet and IndiGo tried to do an aggressive international expansion as the largest international player, Jet Airways, left the market.
    CNBC-TV18 takes you through all what made the headlines in 2019.
    1. Jet Airways
    India’s second-largest airline and largest international player Jet Airways India Ltd suspended operations for a temporary but indefinite period on April 17, 2019. The airline operated its last flight on Amritsar-Mumbai route after its lenders failed to reach consensus on release of emergency funds to keep the airline afloat. The airline had also requested the government to intervene. Saddled with a massive debt of nearly Rs 8,400 crore, the airline had been teetering for weeks after failing to receive a stop-gap loan of about Rs 1,500 crore from its lenders, as part of a rescue deal agreed in late March 2019. It had over 18,000 employees. In 2018, Jet Airways, along with its subsidiary Jet Lite, had a total market share of 15.5  and carried 21.5 million passengers.
    2. Promoters tussle
    The unprecedented corporate war between the two promoters of IndiGo- Rakesh Gangwal and Rahul Bhatia came to the fore on July 9 when IndiGo informed the stock exchanges that Gangwal has sought Sebi's intervention to resolve his concerns about alleged violation of corporate governance norms and "questionable" related party transactions between IndiGo and Rahul Bhatia’s InterGlobe Enterprises. Gangwal also alleged that the shareholder agreement, which was set to expire in October this year, is skewed towards Bhatia and went on to say that a ‘paan ki dukaan’ would fare better than IndiGo in matters of governance.
    Rahul Bhatia, on the other hand, alleged that Gangwal was angry on account of refusal of the IGE Group to succumb to his "unreasonable demands" to dilute the IGE Group's controlling rights and claimed that his ego was hurt as the company had made alternate arrangement for negotiations with Original Equipment Manufacturers upon his refusal to lend his hand. Several contentious board meetings later, the board structure was expanded from 6 to 10, including four independent directors, one of whom has to be a woman. As of now, both parties continue to fight a legal battle overseas after Rahul Bhatia submitted a request for arbitration in the London Court of International Arbitration against Gangwal on issues of compliance with the shareholders’ agreement and articles of association. He has also filed petitions in US courts seeking evidence from Gangwal and independent director Anupam Khanna.
    3. SpiceJet MAX
    The Spicy Hot airline was in the red for the most part of the year as it faced issues arising out of the grounding of its MAX fleet. SpiceJet had to ground its entire MAX fleet of 13 aircraft in March after regulators worldwide ordered grounding following two fatal accidents in the aircraft type. In the next six months, the airline added 37 planes, out of which 31 B737-NG aircraft were of Jet Airways fleet. The older aircraft meant lesser fuel efficiency as compared to MAX and lesser pricing power as MAX could have offered 189 seats as against 168-seater NGs. The sooner Boeing 737 MAX aircraft resumes service, the better it is for SpiceJet’s deteriorating financial health. However, the bad news is that the recertification process has been postponed to 2020 and Boeing has also put a halt on MAX production due to the uncertainty of the timeline of its return. The airline's total order book for MAX aircraft stands at 155 firm order and 50 options.
    4. Double-digit growth
    Air passenger traffic in India posted double-digit growth for the first time in 2019 in the month of November as 12.9 million passengers flew, registering a growth of 11.2 percent on the year. This is the first time that air traffic in India registered a double-digit growth after a period of 11 months. India’s air passenger traffic had grown 12.9 percent on year in December 2018. The current year started with deep financial troubles for the country’s largest international and second-largest domestic airline Jet Airways, leading to its grounding on April 17. As a result, the air traffic growth witnessed a steep decline, being in low single-digit figures and even falling by 4.5 percent on year in April.
    5. Air India
    This year, the government has started preparations for the second attempt at privatisation of Air India. In 2018, the government had decided to offload 74 percent stake in the airline but had got no takers. The government will invite bids for 100 percent stake of Air India this time. While the government has already decided to transfer Rs 29,464 crore to a special purpose vehicle called Air India Asset Holding Company, it is planning to take off as much debt as possible to woo buyers. The government is also mulling to waive off the airline's payables to oil companies, airports and other vendors amounting to around Rs 22,000 crore. As per provisional figures for 2018-19 (April-March), the total debt of the national carrier stood at Rs 58,351.93 crore.
    6. Airport privatisation
    State-run Airports Authority of India commenced the airport privatisation programme of government with six airports in the first phase. The six airports were of Jaipur, Lucknow, Ahmedabad, Mangalore, Trivandrum and Guwahati. In February 2019, Adani Group emerged as the highest bidder for all six, quoting the highest passenger fee to be paid to AAI on a monthly basis. The union cabinet has approved the bids for Lucknow, Ahmedabad and Mangalore, and the concession agreements will be signed once Adani Group’s security clearance comes through. Legal hurdles are yet to be cleared for Jaipur, Guwahati and Trivandrum.
    7. Neo engines
    The Pratt & Whitney-powered engines of Airbus A320neo aircraft continued to trouble IndiGo and GoAir intermittently in the year but the issue started pinching severely since August. About 40 percent of the domestic seat capacity of India is powered by Neo engines. In October 2019, DGCA ordered IndiGo and GoAir to replace engines of 36 A320neos to fix issues in low-pressure turbine. In November, troubles increased for IndiGo. The airline was already facing a challenging task due to delay in aircraft delivery from Airbus and on Nov 1, DGCA asked IndiGo to replace the engines of its entire A320neo fleet by January 31. It had 97 A320neos as of November 1. Further, in another directive late November 2019, DGCA asked IndiGo to ground one A320neo with the unmodified engine for the induction of every new A320neo with the modified engine. As a result, it has reduced its growth capacity forecast for the current financial year to 22-23 percent from 25 percent earlier.
    8. Pawan Hans
    Pawan Hans divestment remained challenging yet again. The divestment of Pawan Hans has been a difficult task for the government since 2017. In October 2017, the government invited bids for 51 percent stake in the company but could not find any suitable takers even after extending the deadline once. In April 2018, the government again invited bids for 51 percent stake in Pawan Hans but soon after, in July, ONGC board passed a resolution that it will also exit Pawan Hans. As a result, the government floated a fresh preliminary information memorandum in October 2018 and invited bids. This bid process was not successful as the single bid received was unacceptable. With the onset of code of conduct ahead of Lok Sabha elections, the divestment process was put on hold. The Narendra Modi government, in its second term, floated an expression of interest on Jul 11 for 51 percent stake. It was reiterated that ONGC will also sell its 49 percent to the successful bidder. The deadline for submission of bids has been extended three times already since then despite several sweeteners in this round. No outcome has been announced for this divestment round yet.
    9. Vistara International
    Vistara, a joint venture between Tata Sons and Singapore Airlines, became an international player in August with flights to Singapore from Delhi and Mumbai. The airline’s international network also consists of Colombo, Bangkok and Dubai. Vistara is also keen to start operations to London, a destination less served since the exit of Jet Airways. Vistara is expected to induct two Boeing 787-9 aircraft by March. Its total order-book for B787-9 stands at six aircraft.
    10. New Order
    No new aircraft orders were placed by any of the Indian airlines this year. However, IndiGo placed a $20 billion order with CFM International for LEAP-1A engines to power 280 Airbus A320neo and A321neo aircraft. The contract includes spare engines and an overhaul support agreement. The decision to choose CFM engines came at a time when the airline had been facing issues related to Pratt & Whitney engines in neo aircraft at a steady rate since 2016.
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