1

Air India’s Maintenance Procedures Raise Serious Questions

December 20, 2015.

A Lucknow-bound Air India flight with 160 passengers on board was forced to return to IGI airport here after being airborne for over an hour following cracks in the aircraft’s wind shield which could have proven extremely dangerous during the flight. All the passengers and crew had a narrow escape.
Flight aborted
Flight AI 411 took off from IGI airport for Lucknow around 7:15 AM. When the plane was airborne for some time, the pilot noticed cracks had developed in the wind shield and decided to head back to New Delhi. The pilot informed the Delhi Air Traffic Control (ATC), following which full emergency conditions were declared at the airport. The aircraft landed safely at 8:20 AM. It was only after the aircraft landed that the passengers came to know as to what had actually happened.
Airport officials said that an aircraft undergoes a rigorous check before taking off. “How the crack appeared on the wind shield is yet to be ascertained,” said an official of the Airports Authority of India. 

“All passengers were deplaned and later flown to their destination in another aircraft. The aircraft is back into operation after necessary repairs.” Air India said

May 2015.

In another incident, a Bhubaneswar-bound Air India flight (AI 873) from Delhi had to make an emergency landing at Lucknow airport after its co-pilot detected a crack in the wind shield of the cockpit. The aircraft— Airbus-321— was flying at 38,000 feet over Khajuraho when the pilot informed passengers over the intercom that they would be making an emergency landing in Lucknow, soon after he spotted the crack.

December 2015.

-Air India has no money to procure spares. 2 Dreamliners grounded. (See Grounded)

-In a freak accident, an Air India technician died after getting sucked into the engine of an aircraft at the Mumbai airport. (See Freak Acci)

These incidents have raised serious questions over the maintenance quality procedures being followed in Air India. Is all well with Air India ?

Earlier, reported by ET Bureau dated December 20, 2015, Ashwani Lohani, the chairman and managing director (CMD) of Air India has stated in an interview, “Many CMDs have come and gone in the past two decades but the situation has rarely improved for the airline. Air India’s turnaround should happen not later than 2018-19. Right now the focus is on improving brand image, productivity, service, motivational level as well as staff morale. And that the airline gives a good experience to its passenger.”
Ashwani Lohani, CMD of Air India

According to the data released by the Directorate General of Civil Aviation, Air India operated the least number of flights on time in August. Air India’s on-time performance compared to the industry average is not very encouraging. The CMD agrees to it. On-time performance is certainly the final product. He sees the end situation as a result of a number of factors –

1. The staff 
-morale,
-shortage  
-their motivational level 

2. And the fact that Air India is a loss-making enterprise; surviving on life-support system – a Rs 30,000-crore bailout package

“We do not have the power to hire regular staff. We can only take people on a contractual basis. So how do I get more working hands?” the CMD has mentioned. This point is to be noted. (See also Don’t Go). 
Air India staff protest
Any organisation requires manpower. In case of an Airline, it is skilled manpower. That too, highly skilled; in aviation circles that area is aptly termed as “critical”. A pilot, an engineer and a technician belong to this category. And, that skill comes through experience: that is, years of grind, training under seniors – something which are not written in traditional text books. Air India CMD knows this very well.

“It is not something that can be fixed straight away; even If I want I can’t make it happen in a day. We are tightening the screws. Towards that end we are working on multiple fronts,” the CMD has said. On an optimistic note he summed up,”A turnaround will happen before 2018-19. It will happen not because of any strategy but because of willpower. I am driven by that dream. Turning around an organisation is an intoxicant for me. I live that dream. I am working for that pleasure, for that high.”
Indigo keeps gowing
Till such time, the common airline user and Air India staff will continue ruing over one grievance or the other. The common tax paying citizen will also like to seek positive results from the airline. Recent incidents surely do not give any nice experience to its customers, as is being hoped by the CMD. Concerns still persist. The CMD is well aware of those concerns. How and when they shall be addressed, remain to be seen. 

The most surprising aspect has been the fact that while Spicejet, Indigo, and Jet are moving ahead, Air India is lagging behind. Analysts are now able to confirm a common man’s view that Air India has been beaten squarely in its own game.

All over the world, it has now become an established fact that India’s civil aviation is growing very fast. (See Fastest). Air India’s contribution is questionable. Shares of Indigo and Spicejet are at their life time highs – something which is beyond the wildest dreams of Air India. Does this fact tell the whole story of last 11 years of India’s civil aviation ?



New Civil Aviation Policy could have Made Air Fares 2% Cheaper

The draft civil aviation policy disclosed by the Civil Aviation Ministry on October 30 has proposed to impose the 2% levy on most domestic and international air tickets to raise funds to improve regional air travel infrastructure. Then, understandably,  the normal air travel will become a little more costly.

That proposal was expected to come into effect from January 1, 2016, but it has to be deferred by the government.

The reason being the fact that the draft note being prepared by the Ministry for the Cabinet, will be ready only by December 25, following which it will be sent for inter-ministerial comments. The approval is expected by 15 Jan 2016.

“As per procedure, various ministries concerned including Finance, Home, Defence, Law, MEA among others will be given 15 days time for their comments,” Ministry sources have said. They did not say anything on their available manpower strength, the lack of which might have caused their homework completion being delayed. Thus, time-lines are being missed. If this is the condition before policy implementation, then one wonders how the Ministry will handle the workload after the aviation policy is put into practice.

The proposed levy is part of draft policy and hence it can’t be implemented without Cabinet approval.

In the draft policy, the Ministry has proposed a number of measures to bolster Regional Air Connectivity. Levying additional cess to providing Viability Gap Funding (VGF) being one of them. The levying of a 2% cess on domestic and international tickets is a part of the Regional Connectivity Scheme (RCS) proposed by the government to boost regional air traffic.

The cess is applicable on all domestic and international tickets other than Cat IIA routes.

Routes connecting airports in the North-Eastern region, Jammu & Kashmir, Andaman & Nicobar, and Lakshadweep are generally known as CAT IIA routes.

The government expects to mop up about Rs 1,500 crore annually from imposition of the levy.

The scheme is likely to come into effect from April 1, 2016. Under the scheme, airfares will be capped at Rs. 2,500 for an hour’s flight on remote routes which will be a part of the scheme. To do so, the cess charged on airfares will go towards the regional connectivity fund which will meet part of the airline’s expenses incurred on the regional routes.

Inherently Flawed.

The aviation sector in India, experts have opined, has great potential; the RCS  can survive without such spoon-feeding tactic. [See Great potential]. On the contrary, in the coming days, the air fares would have come down by at least 2%, if not more. Reasons being –

  • Decreasing ATF prices  

  • Maintenance costs brought down, taxes cut
  • More operators coming up, competition gearing up
  • Passenger and cargo loads showing increasing trends in sync with economy, and ABOVE ALL
  • 50 or more new airports coming out of extinction under RCS.

Not able to bring down the airfares,  clearly indicates that the aviation policy which is going to be followed is inherently flawed.  

The government has estimated a total project cost of Rs 24,000 crore for the development of 14 greenfield airports in the country. [See Greenfield Airport]. Regional connectivity, small town airports help airlines to geographically increase the footprint. The government plans to coordinate with all the stakeholders to provide greater regulatory certainty under the PPP mode. According to IndiGo President Aditya Ghosh, the creation of low cost airports would bring down lots of cost efficiency in the business; if ground handling becomes efficient then lower fare would actually become a possibility.

But, the new aviation policy does not recognize the true potential of a new country-side airport. It does not propose anything  to capitalise on the quanta of non-aeronautical revenue that each such airport would bring along.  It appears to be happy with the Rs 1500 cr a year earning that the 2% cess will bring. But, experts feel that, if applied professionally, the non-aeronautical revenue from 50+ airports  could be much more than Rs 1500 cr a year. Then, in that scenario, the RCS players, if asked, will happily offer 2% or more to bring down the air fare.



Pan-India Operations are Likely to Commence: Air Costa

Vijayawada-based regional airline Air Costa has received a No Objection Certificate (NOC) from the Ministry of Civil Aviation for expanding its operations across the country. 

Pan-India operations are likely to commence from the summer schedule 2016, Deputy CEO Vivek Choudhary said, and will connect major destinations like New Delhi, Bhubaneswar, Varanasi and Pune..

The airline will add an E190 (110-seater) this month to its fleet. This will be augmented by another aircraft in February 2016, taking the fleet size to five, to be followed by further additions later next year, he added. 


To aid the expansion plan, the airline had in February 2014 placed an order for 50 E2 Jets with Embraer that are equipped with the latest avionics and upgraded engines with better fuel consumption. The airline currently uses Embraer aircraft (existing two E170 with 67 seats, two E190 with 112 seats and two newly-inducting flights with 110 seats).  

Ramesh Lingamaneni, chairman of the airline said in a statement that Air Costa is a two year young airline. From operating two Embraer aircraft to five destinations with 300 employees, in a year’s time, the carrier has doubled its fleet to four aircraft and has served nine destinations with close to 800 employees. 

“Since many of our metros were near saturation, we believed that the next big growth wave was going to come from the developing cities. Our vision was to the tap the burgeoning and promising tier II market by stimulating growth through better air connectivity to tier I cities,” he said.

Air Costa, South India’s first regional airline, is a part of the privately-held LEPL Group, a Vijayawada-based diversified entity with interests in property development and infrastructure development in the commercial, residential, hospitality, power (renewable energy) and health sectors. 

The airline claims to have carried one million passengers in the last two years of commercial operations.  It currently has 32 daily flights and connects nine cities namely Chennai, Bengaluru, Hyderabad, Jaipur, Ahmedabad, Tirupati, Coimbatore, Visakhapatnam and Vijayawada. 



The Airline Pilot is Like a Precious Jewel.

Air India’s main grievance has been on exodus of pilots. “We train them, bear all expenses, and our competitors poach”. 
The trained pilot is one of the Airlines’ biggest assets.

Pilots of Air India
“173 Air India pilots have resigned from the national carrier since 2012, with maximum numbers being of those operating the Airbus family aircraft”: Civil Aviation Minister Ashok Gajapathi Raju 
The company should see our side of the story also

In a written reply in Lok Sabha, on number of pilots, the Minister said 

  • 72 of Airbus family 
    A pilot is like a precious jewel

  • 38 of Boeing 787 Dreamliner 
  • 38 of Boeing 777, 
  • 8 of Boeing 747 and 
  • 17 of Boeing 737 fleet 

have resigned between 2012 and October this year.

The Minister said the cost of training a pilot in a Boeing aircraft has gone up by 36% between 2012 and October this year while it has increased by 33% for Airbus family of planes during this period.

[See Stop Poaching]

Raju said the annual recurrent training cost on training a pilot for a Boeing aircraft stood at Rs 2.04 lakh while for an Airbus plane it was Rs 2.26 lakh in 2012.

This training cost increased to Rs 4.01 lakh and Rs 3.01 lakh till October this year, he said. As against this, the type rating cost per pilot for a Boeing pilot rose to Rs 23.25 lakh till October this year from Rs 19.74 lakh in 2012.

Pilots too agitate
Besides, the type rating cost per pilot for an Airbus pilot, which was Rs 21.32 lakh in 2012, has increased to Rs 22.94 lakh till October this year, according to data.

The Minister said, as per present policy of Air India, all pilots are appointed on fixed term contract of five years.
Civil Aviation Minister Ashok Gajapathi Raju 
Each pilot is required to give a bank guarantee for amount equivalent to training cost which would be invoked if any pilot leaves the company before completion of five years of fixed term contract, he said.

To a query on the corrective steps taken to prevent exodus of its pilots, Raju said the Cabinet Committee on Economic Affairs (CCEA) has authorised the Ministry of Civil Aviation for periodic review of pay allowances and perks of pilots based on the prevalent market standards.

“This will help in resisting attempts by competing airlines from poaching of pilots on accounts of lesser pay and perks as compared to the industry standards,” the Minister said.

The career progression of co-pilots has been addressed through their upgrade training, he said, adding pilots are given open access to voice their grievances of day to day issues, and immediate steps are taken for remedial action, Raju added.



A Running Jet Engine is Extremely Hazardous

In a freak accident, an Air India technician died after getting sucked into the engine of an aircraft at the Mumbai airport

Working near a running jet engine is extraordinarily dangerous. An Aircraft jet  engine, running at idle power, has a hazard zone of 9 feet to the front and sides of the engine. Its inlet dia is large enough for a human to pass. Even at idle thrust, a human who is in the vicinity of hazard area is at a great risk of being fatally sucked inside and consumed by the engine. When the engine is above idle thrust, the hazard zone increases to 14 feet or more. Engines on larger jets, like the 777 have much larger hazard zones. It is absolutely critical that ground crews can identify a running engine and stay away from it.

Engine Hazard Areas

These hazard-area warning decals are located on both left and right engine nacelles. To further promote awareness of engine inlet hazard zones and provide ground personnel with a visual definition of the zones, some aircraft operators have painted engine inlet hazard zone boundaries on ramp surfaces at parking locations. If ramp surfaces are painted, aircraft manufacturers recommend only painting hazard boundaries for above idle power to prevent any confusion that may result from different boundary areas. 

Markings on Engine

Yesterday, unfortunately, Ravi Subramanian, an Air India technician, died after he was sucked into the Airbus 319 engine of a parked plane at Mumbai’s Chhatrapati Shivaji International Airport. When the Mumbai-Hyderabad flight AI 619 began its pushback at 8.46 pm, Subramanian got pulled into the engine and died instantly. Airport sources said that his body was severely mutilated.

Though the airline has ordered an investigation into the incident; the DGCA has also ordered an inquiry, after the terrible accident it was not clear how the worker came to be so close to the engine.



Stars Are Shining Bright : Indian Aviation


Flying High
The ground reality of the Indian Aviation Sector is reflected in the following headlines being carried in the media nowadays :-
  • Indian aviation industry to remain on growth path in near future 
  • Aviation stocks soar as oil dips further 
  • Riding the re-rating wave,  Stocks of Aviation companies surge 5-8% 
  • Prices of Brent crude oil touched multi-year lows. 
  • Scrips are getting higher valuations as demand stays strong 
How correct or misplaced are these ? Your views are welcome.

Overview.

On a high
Indian Aviation Industry has become one of the fastest-growing aviation industries in the world. No doubt about this. And this has more to do with growth in population. [See India to become]. This industry promises huge growth potential on account of large and growing middle class population, rapid economic growth, higher disposable incomes, rising aspirations of the middle class and overall low penetration levels at present. Factors such as foreign direct investment (FDI) in domestic airlines, low-cost carriers (LCC), information technology (IT) interventions, a rising need for regional connectivity, and the government’s initiatives have pushed the growth in the domestic aviation as a whole. Indian aviation sector is aspiring to become the world’s third-largest aviation market by 2020 and the largest by 2030. [See Fastest Growing]

Rise in passengers carried by domestic airlines

In the second quarter of current financial year: 
Domestic air passenger traffic – 20.17 million
same period of last year – 16.732 million
Total passengers carried in October 2015 – 7.039 million 

same period of last year – 5.925 million

Private Airlines Market Share. September 2015. 
  1. Indigo – 43.34% 
  2. Jet – 22.79% 
  3. Spicejet – 14.61% 
  4. Go Air – 10.33% 
  5. Jet Lite – 3.3% 

AirAsia+Vistara+AirCosta+Trujet+Air Pegasus – 5.58% 

Top 4 command 91% of the market share.

Recent Developments 
India’s largest carrier IndiGo came up with the country’s largest initial public offering (IPO) in 3 years. Optimism Indicator. This was the biggest IPO in the Indian market since Bharti Infratel’s over Rs 4,000-crore public offer in December, 2012. India’s only consistently profitable airline, sold shares at Rs 765 and plans to use the money raised to expand operations and trim debt. The Rs 3,018-crore public offer of IndiGo’s parent InterGlobe Aviation was subscribed more than expected. 
Tata Advanced Systems (TASL) has signed a joint venture with Boeing to establish a centre of excellence for manufacturing aero structures for Apache helicopter initially and collaborate on integrated systems development opportunities in India in the long term. [See Tata]. A company like Boeing recognizes potential here.

Government Initiatives. 

Civil Aviation Minister of State Mahesh Sharma
The Union government had released Draft National Civil Aviation Policy 2015 on October 30 which aimed to make flying affordable for the masses. The draft underlines 16 critical areas of civil aviation including safety,regional connectivity, bilateral traffic rights, and MRO operations. A series of government initiatives and recent developments have already provided huge support to aviation sector and companies related to this industry witnessed tremendous growth in recent months. [See Govt Clears]. The government has unveiled draft aviation policy. The main objective of this policy is to Enhance regional connectivity through fiscal support and infrastructure development. Enhance ease of doing business through deregulation, simplified procedures and e-governance, Promote the entire aviation sector chain: cargo, MRO, general aviation, aerospace manufacturing and skill development. In view of this, the Airports Authority of India (AAI) is planning to revive and operationalise around 50 airports in India over the next 10 years. As a result, even the Air Charter operators have estimated growth up to Rs 5,000 crore. [See Baron].

More and More greenfield airports are coming up

The Reserve Bank of India (RBI), is relaxing norms for aircraft and helicopter imports and has said that banks can allow advance remittances for imports once the company has approval from aviation regulator DGCA. 
The Ministry of Civil Aviation has signed Memorandum of Understanding (MoU) with Finland, Kazakhstan, Kenya, Sweden, Norway, Denmark, Oman and Ethiopia for increased co-operation between the countries in terms of additional seats, sharing of airlines codes, increased frequencies and additional points of call, during the International Civil Aviation Negotiations (ICAN), 2015 held in Antalya, Turkey. 

Outlook 

Appears to be Bright. The outlook for Indian aviation industry for near and middle term has improved due to a fall in aviation fuel prices, which account for nearly 35% the operating expenses of airlines in India. The passenger traffic has also witnessed a strong growth in the second quarter of current financial year and it is expected to continuously grow in near future. It is expected to maintain the momentum in future too. Losses of Indian aviation companies are expected to decrease, while IndiGo and SpiceJet are expected to generate profit due to fall in crude oil prices, and increase in traffic in the current financial year. 

Stock Market Scenario. 


Globally, aviation stocks are looking up. The most important factor is Oil price. Crude oil prices fell below $35 a barrel – about 43% decline from the 2015 peak of $67.77 per barrel. Prices of Brent crude oil touched multi-year lows. Aviation scrips attracted more buyers posting gains of 5-8.5 per cent. InterGlobe Aviation and Jet Airways shares touched their 52-week highs. SpiceJet also made smart gains. With fuel costs falling and passenger numbers rising, analysts have re-rated aviation sector and given higher multiples for such listed stocks. 

Motilal Oswal Securities in a recent report attributed a fair value of Rs 1,478 to the Indigo stock. The stock has been continuously re-rated since the time of its initial public offering (IPO). Expectations of an attractive dividend yield upwards of five per cent (Rs 60 a share) is adding to the Street’s interest. InterGlobe Aviation shares closed at a price of Rs 1,184.5 in the BSE, have rallied more than 50% since the stock got listed on the bourses in November. The company had raised more than Rs 3,000 crore from the primary market via IPO. 


Spicejet became the best performing aviation stock in the world. [See Best Performing]. SpiceJet recorded more than 90% load factors continuously for 6 months due to the same reasons: Low fuel cost, passenger growth and aggressive pricing. This is a big positive for its re-rating. Shares of Airline companies were bullish since last one month after several High Networth Individuals (HNIs) including Rakesh Jhunjhunwala increased their stock holdings in Airlines. Shares of Jet Airways soared nearly 17% since November. 

Even then, as is usual, investors are apprehensive. Doubts spring up naturally. 
  • Is the re-rating justified? 
  • Should I buy at these levels? 
  • Stocks such as Indigo are already up 54 per cent from issue price of Rs 765! How high will it go? 

The Street’s view is mixed. The Indigo stock is fairly valued and might not correct below Rs 1,100. Santosh Hiredesai of Edelweiss Securities in a note last month said the company’s premium valuations were justified because of its market leadership position. Indigo is going ahead with firm steps. Its structural cost advantage and expansion strategy will help it register stronger growth than peers. While SpiceJet trades at a discount to Indigo, analysts say the discount will narrow only if the company manages to post consistent net profits. 

As is widely understood: 
-Aviation sector in India is going through its best period 
-This sector is dependent on external factors which are beyond its control 
-Fuel prices are sensitive 
-If crude oil prices move up, passenger load and profit projections could go awry. 

With these factors in view, Daljeet Kohli of IndiaNivesh says looking at valuations in this way at this stage might be wrong to judge future prospects. The sector should not get premium valuations and that applies to Indigo also. 

Negatives.

In Mid November, Competition Commission of India (CCI) passed an order penalising three airlines for cartelisation in determining the fuel surcharge on air cargo.CCI, which is the government authority to enforce the Competition Act. It imposed penalties of Rs 151.69 crore and Rs 63.74 crore on Jet Airways and InterGlobe Aviation while SpiceJet was ordered to pay Rs 42.48 crore. All three were aptly labelled “unfair business practitioner”. [See Penalised More]

Airlines like Indigo often face public anger and cases in consumer and labor courts. [See Indigo leaves passengers in lurch]. This might affect its credibility when it comes to rankings in terms of hospitality or customer services.