Not just truncated operations, the country’s civil aviation sector is facing the real danger of massive downsizing and bankruptcies due to restricted cash flows subsequent to coronavirus outbreak.
Accordingly, industry insiders contend that travel-related restrictions as well as general fear and panic has reduced cash flows to a trickle.
The sector is the worst affected due to the outbreak. Airlines are forced to ground aircraft due to massive cancellations, rebookings, and truncated operations.
Presently, international operations have come to a virtual halt with many airlines deciding to suspend overseas flights.
Similarly, the domestic load factors have taken a hit with a 20 per cent drop in passenger traffic.
“We expect nearly 40 per cent of our aircraft will be grounded at various airports in the coming days as there will not be enough demand to warrant services on certain sectors,” a senior airline executive told IANS.
“Aircraft induction plans may be revised as well. The sector will require government intervention to at least take care of the airport charges.”
At present, India has 700 plus aircraft, with another 1,200 or more which are being delivered to the airlines.
Subsequent to the projected aircraft grounding, pay cuts and job losses will impact the sector’s employees.
“In the short run, if the pandemic continues at this pace in India, we can expect airlines to ground aircraft, send employees on unpaid leaves and go for pay cuts. However, if it lasts longer, then there may even be downsizing and job losses in the industry,” said Kinjal Shah, Vice President, ICRA.
“Currently, international operations have come to a virtual halt, domestic occupancy rates have fallen. This has led to curtailed cash flows for the airlines. Nevertheless, they still have fixed costs that need to be met. Therefore, profitability wise the sector is in deep stress.”
According to Suman Chowdhury, President, Acuite Ratings: “Some airlines have announced pay cuts or leave without pay for their employees which may yield some short-term cost benefits.”
“However, we are not sure whether such steps will be adequate to mitigate the impact on the airline sector which is plagued by pressures not only on profitability but also liquidity. The liquidity position of airline companies will clearly be affected by the sudden drop in future bookings and the refund for past bookings in cancelled flights.”
In a report, CAPA India has said that as a result of the significant reduction in flying, Indian carriers may initially ground around 150 aircraft, with this number expected to increase as more domestic operations are curtailed over the coming weeks.
“If the decline in traffic continues to be severe, the majority of the fleet could be grounded by April. By extension, the reduced scale of operations could impact the requirement for around 30 per cent of airline staff and up to 50 per cent of ground handling staff,” the report said.
“For the first couple of months, this could potentially be handled through mandatory leave and leave-without-pay initiatives for 1-2 months. But should the situation continue beyond a few weeks, it will quickly result in short-term retrenchment — with the prospect of re-employment once the situation improves. And an extended downturn will inevitably lead to significant redundancies.”
Already, airline major IndiGo decided to institute pay cuts for a majority of its employees.
In an e-mail to employees, IndiGo’s Chief Executive Ronojoy Dutta said: “Across the globe have issued travel advisories which have resulted in a virtual shutdown of all our international flights. Domestic bookings too are down by around 20 per cent and it is not clear that the situation will not get worse before it gets better.”
“We have to pay careful attention to our cash flow so that we do not run out of cash. Unfortunately, this means that we have to reduce our costs in line with the drop in revenues.”A
“I am personally taking a 25 per cent pay cut….”
A few day’s back, GoAir terminated the service contracts of expatriate pilots.
The move was in line with the reduced international capacity, it said.
“In view of the current situation, GoAir has been forced to terminate contracts of expat pilots, which is in line with the reduced international capacity,” a GoAir spokesperson said.
Besides, the airline has initiated a short term rotational leave without pay programme that “will not only help the company counter the short term reduction in capacity, but will also ensure that a cross section of our employees stay away from the workplace for a month at a time to ensure business continuity.”
“Knowing that this will put a financial burden on the affected employees and having studied what companies have done in other countries to help guide our plans, this decision was not taken lightly,” the airline said.
“In addition to addressing our short term financial and network requirements, airlines in India have petitioned the Government of India for immediate support, as most other governments around the world have already provided to their similarly affected airlines.”
Earlier in the month, Civil Aviation Minister Hardeep Singh Puri told reporters in New Delhi that the government is aware of the situation faced by the airline sector.