In the midst of financial troubles, Air India is being divested from the Indian Government and it is hoped that expressions of interest from private investors might save the airline. However, while it waits, the debts deepen. So much so that an Airbus A320 can’t get an engine replacement because it doesn’t have the money to pay for it. Yikes.
The grounded airbus
According to the Times of India, an Airbus narrowbody aircraft is grounded because an engine replacement is needed that the airline can’t afford. The airline does have a spare engine for the aircraft; however, it has to transport it from Delhi to the western city of Vadodara outside Ahmedabad.
The Times of India spoke to a source familiar with the issue who said the following:
“Our GST dues are about Rs 100 crore and because of that the paperwork required to send the engine to Vadodara is not being done.” – Unidentified senior official
100 crore in Indian rupees is equivalent to just under US$14.1 million. Apparently, this is how much the airline owes in GST dues. Interestingly, this isn’t the only aircraft being grounded due to insufficient funds. In fact, a whopping 12 Airbus A320 aircraft are currently on the ground, unable to fly because of issues the airline can’t afford to fix.
An insider says it owes significant dues to engine manufacturers. “That is why we have not been able to get new replacement engines for our 12 single aisles,” said an official.
Sources also report that the airline still hasn’t paid its employees their December salaries – something that it hopes to do very soon, along with these GST dues.
Awaiting a new owner
Air India doesn’t seem to have found an owner yet after inviting EoIs – Expressions of Interests – from anyone who might have billions of dollars to invest in turning around the airline. Reports and rumors have emerged lately that certain airlines could swoop in.
Abu Dhabi-based airline Etihad could make a play for struggling national carrier Air India. The Economic Times of India reports that the UAE carrier has expressed interest in taking a stake in the carrier. No firm bid has been made yet, however. Apparently India’s largest airline by fleet size, Indigo, is also interested in a stake. This is according to a senior unnamed government official speaking with the Economic Times.
There were rumors that the airline would shut down completely. However, the chairman of the airline’s board firmly denies those reports, calling them ‘baseless’.
A downward spiral
The inability to afford maintenance costs like this is indicative of a downward spiral that can seriously sink an airline. Once enough debt accumulates, the airline’s operations are hampered as it is unable to accord the very expenses that keep it moving.
Whether its the lost gains of an out-of-service aircraft, or striking workers (as in the case of SAA), these difficulties associated with a lack of cash will, in turn, erode customer confidence and discourage future bookings.
South African Airways (SAA), Alitalia, and Flybe, are airlines currently finding themselves in very unprofitable situations. SAA had to deal with striking workers last year as it attempted to make some cuts while Alitalia has been searching for a buyer of its own. Flybe was on the verge of collapse several days ago, however, the UK Government approved a rescue deal that will keep the regional airline in the air.
At the moment the Indian government is still responsible for the airline. While you would think that there must be something the government can do about the government-imposed taxes the airline owes – the fact is that other airlines having to pay the same taxes would cry foul due to the preferential treatment.
At this point what do you think will be the fate of Air India? Let us know your thoughts by leaving a comment!