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Published on: Oct. 18, 2021, 12:05 p.m.
Moving to a higher altitude
  • Will the Tatas make it fly high again?

By Yeshi Seli. Assistant Editor, Business India

The announcement of Tatas taking over Air India has been welcomed by most people. But are the celebratory messages a tad bit early? Tatas may have got Air India at a throwaway price, as some are alleging, but the task that lies ahead is an uphill one.

Globally it is well known that aviation is a high-investment business and it takes deep pockets. In the domestic scene too, the market leader IndiGo is absorbing the shock dealt by losses. Tatas run two airlines in India – Vistara (51 per cent stake) and Air Asia (80 per cent stake). Both these carriers are incurring huge losses.

Vistara’s losses in 2021-22 was Rs1,612 crore whereas Air Asia’s losses were to the tune of Rs1,533 crore during the same period. “These losses indicate that it will not be easy for the Tatas to make Air India profitable as along with the assets that include 55 international routes, 3,000 parking and landing slots and 141 aircraft, the liability of excess staff, scouting for a new office space for thousands of its employees, tough competition from airlines like IndiGo and the high cost of aviation turbine fuel (ATF),” says an aviation expert.

Times have changed from when Air India was nationalised in 1953 when flying was only for the rich and privileged. There were fewer aircraft and few sectors to fly on. Now with many private airlines operating in India a passenger can choose between taking a train or flying as it has become commercially viable to buy an airline ticket. However, it’s unviable for airlines to sell tickets at a low price. 

It will be a catch 22 for Tatas to bring down their fares to match those of their competitors. Besides, the high cost of aviation turbine fuel (which is around 30 to 40 per cent of the cost of operating an aircraft) would make it difficult to match the reduced fares of competitors. 

Will Tatas be able to take these challenges head on? To improve their share in the domestic sector will be a challenge. One advantage Tatas will have is their own staff, TCS – which has over 488,649 employees worldwide – particularly travel overseas.  A good captive market! And when posted overseas, so many Indians invite their parents to visit abroad for the first time, and they would prefer to travel with Air India.

If majority of them begin to fly Air India it would increase and improve their passenger traffic both within India and overseas. The real challenge will be to get the high end business travellers to come back to Air India. Most businessmen say they can’t remember when they last flew AI!

Tatas – though not gone on record – have been talking about putting all their airlines – Vistara, Air Asia and Air India under one umbrella. But how easy is this process going to be? 

It is likely that they will merge the two low-cost airlines Air India Express and Air Asia India. One of the issues here is that both operate on different fleets. While AI Express flies Boeings and Air Asia India has Airbus 320s. Vistara and Air India can be merged but that would require Singapore Airlines’ approval as it holds 49 per cent stake in the airlines. But this is a technical issue.

If the three are merged, the combined fleet strength of the three airlines operated by Tatas would be 222 (141 of Air India, 48 of Vistara and 33 of Air Asia), whereas, IndiGo currently has an existing fleet of 260 aircraft.

MRO expenses

Apart from reviving the ailing Air India, its new owner will have to shell out a few thousand crore to run its huge fleet. The Tatas will have to spend nearly Rs2,000 crore for repairing AI’s grounded aircraft. Another Rs1,000 crore will go towards cabin upgrades of the entire fleet.

Air India operates 141 aircraft, including Air India Express’s 24 Boeing B737-800s. Around 43 of these are on lease. The Air India fleet includes Airbuses (A319-100, A320-200, A320-200neo, A321-200); and Boeings (B747-400, B777-200(LR), B777-300(ER) and B787-800). The number of permanent employees per aircraft is 133 at Air India and 55 at Air India Express.

Despite having its maintenance, repair and overhaul facility in India, Air India has a less than average record of fleet maintenance. Around 24 aircraft have been grounded due to lack of spares as they are old.

“There is little AI engineers can do when spares are not available. We are qualified and experienced but lack of support from the management in spending on maintenance has become the bane of our existance,’’ says an Air India engineer on conditions of anonymity.

Private airlines only do line maintenance and scheduled checks locally, major overhauls are usually done in London and other European cities as it is cheaper than setting up and maintaining their own facility in India.

Air India has some aircraft on sale and leaseback (SLB) model. Under this SLB model, an airline acquires the aircraft at a reasonable cost and sells it to a lessor – ideally at a profit – and leases it back for its own use. AI did it to improve cash flow, though it is a costly proposition in the long run. Most of AI’s Boeing 787 Dreamliners are on SLBs.

Tatas may have to lease new aircraft and upgrade interiors of existing aircraft to match competitors. They will also need to upgrade the reservation system.

Meanwhile, the Tata Group’s three airlines will together have about 26.7 per cent of the domestic Indian aviation market. However, this is far behind the market leader, IndiGo which has a dominating 57 per cent share of passenger traffic. On the domestic sector it will take a few years before Tatas increase their market share, but with more routes on the international sector profits could be made earlier than that.

According to the aviation expert, another major task for the Tatas will be to oversee core synergies which would include buying aircraft parts that are common to Vistara and Air India, engineering services, repairs and maintenance and consolidation of busy slots.

The fact that Air India’s fleet includes both Boeing and Airbus aircraft makes achieving synergy more complex. Then there’s the matter of staff, pilots and ground officials, and ensuring there is enough communication going on between trade unions and the group.

“At some point Air India’s owners will have to make some major decisions about its fleet. While the airline does operate some relatively new types, such as Boeings 787s and Airbus A320 neos, it also has some types and variants that are old enough to be replaced. Currently Air India has no aircraft on order,’’ according to Centre for Asia Pacific Aviation (CAPA).

“Air India’s oldest aircraft are four 747-400s with an average age of 26 years. Its Boeing 777 fleet has an average age of 11 years so it will have to start thinking of replacement orders. The bulk of its A 320s fleet comprises fairly new A 320 neos, the remainder are A 320/A321/A319 ceos. Most of the ceos are in the 12-16 years age bracket,’’ adds CAPA.

Air India Express operates a fleet of 24 737-800s. “This would be a complication for a merger with Air Asia which operates 34 A 320s. Presumably any combination of the two would involve eventually phasing out one of the fleet types,’’ states CAPA.

The A 320 would appear to be the most likely type to focus on in the long term, as both Air India and Vistara mainly rely on that family for their narrow bodies.

Another challenge facing the Tatas will be to find office space and pay for it. The Tata-AI deal does not include the airline’s other assets and the buildings like the Air India building at Nariman Point and Airlines House in Delhi. As a result, one of the Tata group’s first jobs will be to locate office accommodation for around 12,000 AI employees.  The new entity will have to decide where it would have its new headquarters. Air India’s headquarters was Mumbai till 2007. After being merged with Indian Airlines its headquarters shifted to New Delhi.

Bansal’s message

Meanwhile, the civil aviation secretary Rajiv Bansal stated recently that Tatas will have to retain all employees for at least one year and those who will be terminated after a year should be offered a VRS. Air India has a total of 12,085 employees comprising 8,084 permanent and 4,001 contractual staff. Its subsidiary Air India Express has 1,434 employees. Around 5,000 employees will retire from the airline during the next five years. The retired employees will continue to get the medical benefits as per the rules. Around 55,000 retired staff are associated with Air India at present.

In a recent order issued to the management of Air India, Bansal has asked the employees to control expenses till the disinvestment exercise is complete. “The employees have been asked to carry out all revenue or capital expenses only to the extent necessary for the continuity of business till the disinvestment exercise is complete.’’ Bansal has directed the management not to enter into any fresh contract without the approval of the Director Finance (DF) and the CMD.

“No fresh contract to be entered into without the prior consent of DF or CMD. As far as possible the validity of the same may not be beyond March 2022. If the validity is beyond March 2022, it should have a termination clause,’’ the order states.

Alliance Air, and non-aeronautical assets like land and buildings of Air India continue to be under government control. Their estimated worth is around Rs14,700 crore.

Rebuilding Air India

“The pitfalls are many, and real. There are now three airlines in the Tata’s kitty. Merging the three entities will result in huge cost savings of reduced employee and infrastructure by eliminating three separate CEOs with three boards of directors and similarly three departments each of finance, engineering, operations, IT, revenue management, etc. It will prevent the three airlines competing with each other, and cannibalising each other’s passengers, instead of competing as one major carrier against IndiGo, SpiceJet, and GoAir. If the airlines can put aside their ego and convert all domestic routes to single-class all-economy on the lines of Air France and other European major carriers, and only international flights with business class and economy, the Tatas might just be able to pull it off, and compete against the giants such as SIA, Emirates, British Airways and Lufthansa,’’ says Captain Gopinath of ex-Deccan Air.

The Tatas must bear in mind no full service carrier has succeeded against low cost carriers in the domestic market anywhere in the world. The full service is an inherently flawed model.

“The three Tata airlines do not have a cultural fit. There are partnership dissonance between the Tatas and Tony Fernandes of Air Asia who still holds shares, and between Singapore Airlines and Vistara. All this needs lightning speed, the ability to fuse the three entities into a single homogenous, tight knit, vibrant company, with a common heartbeat and vision,’’Gopinath added.

The Tatas will also need to identify someone who can be at the helm of affairs under their ownership, which they are good with.At present the Civil Aviation Secretary Rajiv Bansal is holding additional charge of CMD of Air India.

Ratan Tata is in his eighties, and N Chandrasekaran, the Chairman of Tata Sons who wants to rebuild Air India to its glory days, has no time to lose. “He must find the right man to lead Air India – someone who has the heart and brains of JRD – if he has to deliver on his promise to make it a jewel of Tata Group and pride of India again,’’ points out Gopinath.

Willie Walsh, who took over as the Director-General of the  International Air Transport Association (IATA) in April this year, has welcomed the privatisation of Air India and says one should expect to see increased competition. “I think that is good for consumers,’’ says Walsh.

Getting crowded in the sky

Besides, two airlines are waiting to take off. The first is Jet Airways under its new ownership of Murari Lal Jalan and London investor Kalrock Capital. Domestic operations are likely to commence early in 2022 and international by the third quarter.

“Jet 2.0 aims at restarting domestic operations by Q1 of 2022 and short-haul international operations by Q3-Q4 of 2022,” says Jalan, who would become the non-executive chairman of the new entity. “Our plan is to have 50 plus aircraft in three years and over 100 aircraft in five years.”

The other one is Akasa (means ‘sky’ in Sanskrit), an ultra-low-cost airline floated by ‘Big Bull’ Rakesh Jhunjhunwala, which is expected to take flight by summerof 2022. The airline got a no-objection certificate from the government and is planning to place an order for about 50 Boeing 737 Max aircraft soon. 

However, there are many who are optimistic of Air India regaining its lost glory under the Tatas. Some employees of Air India too are celebrating this move.“We are happy not just because of the fact that we will be under the Tatas who are known to be credible but also because the retirement age of pilots in Air India Express was 58 and after the acquisition it would be 65. Additional years of service is a welcome move,’’ says a pilot from Air India Express. Since the formal announcement of the takeover, the pilot says their airline is already beginning to run more professionally. He also said that from working on contract they would be converted into full-time employees.

“We at Air India would get complimentary tickets for ourselves and family on the domestic and international sectors but only on Air India. We will not get ID 20, which will enable us to fly on the same pass on other airlines,’’ the pilot says adding that they were working on contract in Air India Express and suffered a pay disparity with the parent company. Now they are optimistic that there would be a level-playing field.

There are others too who are optimistic of the buyout and feel it was the only way to revive the airline.“Under the government ownership there was no chance of Air India’s revival. Bureaucrats are not the right people to run an airline as they lack knowledge and sense of commitment. How bizzare is the fact that over Rs1.10 lakh crore has already been infused to revive the airline in the past decade and yet nothing improved! I had been propagating that Air India be returned to the Tatas since 2013. T

he carrier has huge aeronautical assets which include over 2,000 pilots, aircraft maintenance engineers, cabin crew. With private ownership efficiency will return. Also, since the past five years the staff of Air India has been working at a pay cut and get only 75 per cent of their salary. This actually is demotivating. 

As per the grapevine, the Tatas will add 20 per cent more fleet to Air India. It should take anywhere between 3 and 6 months for some changes to be made – which would include ontime performance, staff’s attitude, professional work culture. “Accountability will improve the overall performance. Besides, unions wouldn’t be able to arm-twist the management. I remember the unions were upset with my decision to include accountability of employees and within the next few days I was transferred out of the HR department by pressurising the then CMD of Air India V. Thulasidas. Such episodes would not be repeated under the Tatas. I must add that many of the existing employees of Air India were hoping that the Tatas take over the company – their dream has now come true!,’’ says Jitendra Bhargava, former executive director of Air India and author of the book Descent of Air India.

Giant leap in aviation

The stock market has been buoyant since the announcement and the Tatas have gained a lot there.“This is the first major privatisation deal done by the present government. This should have a positive effect on the overall sentiment in the capital markets and the valuations of public sector undertakings. Usually such big and bold moves open the way for many other such white elephants to be privatised. So one can hope that over the next few years this could lead to substantial savings for the government and significantimprovements in the management of state-owned non-strategic enterprises,’’ says Ashish Kapur, CEO, InvestShoppe.

“Takeover of Air India by the Tatas is a very welcome move in my opinion. It is a win-win deal for all the stakeholders.It is beneficial for the government as they get rid of a loss making enterprise which has little or no strategic importance or reason to be under state control. Airlines worldwide are a very difficult business to run profitably. Hence there was a very little chance of this airline ever becoming profitable as a state managed enterprise,’’ he adds.

“As citizens we gain on two fronts. Firstly, the tax payer’s money being wasted on making good of the losses of this enterprise will get saved. Secondly, we get a much better managed airline for travel, especially on international routes. Lastly this is also a good deal for the Tatas. They already are in the aviation space with Vistara and a stake in Air Asia. Takeover of Air India will give them a very dominant position in the industry. On their own it would have taken them many years to build this support system and get so many international routes and a globally recognised brand. The cash outgo and debt which comes with it is big but not unmanageable. Moreover it seems to be a fair price to be paid for the giant leap in aviation which the Tatas have secured,’’ adds Kapur.

A former CMD of Air India, says, “it is good that the Tatas have taken over Air India as they have systems and processes in place as a result of which they would be able to run the airline effectively. In an airline, fast decision making is required, which is not something we could do as it was controlled by the state. Operationally for two years 2015-16 and 2016-17 Air India was making profits. It was the R6,000 crore annual debt services that were a huge burden.’’

Meanwhile, there have been strong condemnations of the low price at which Air India has been sold. In a statement, the unions have said that the government has sold Air India for an amount that was too low compared to “what has gone into building it up for decades.’’

Gifting back to the Tatas?

“This is a gift back to the Tatas on the 75th year of Independence. Over Rs1.10 lakh crore had been infused to revive the airline in the past decade, all that has gone in vain,’’ a member of the union said, adding that the deal would mean that the government would absorb Rs46,262 crore of the Rs67,000 crore debt of Air India.

“The iconic national carrier’s sale is tantamount to a free gift to the Tatas by the present government. This is daylight highway robbery of national assets,’’ says Sitaram Yechury, General Secretary, CPI(M).

A joint platform of 10 trade unions issued a statement that the sale of Air India was a gift from the government to Tatas.

However, there are many experts in the aviation sector who have welcomed the entry of Tatas as a bigger aviation entity in India.

“There is room for two-three airlines in India. It is not like there is room for only one. I have spent all my life competing United Airlines versus American Airlines. I worked for 20 years with United and every day I was competing against American. Both airlines survived. IndiGo and Air India will compete as well. The Tatas will be a formidable force. I think it will be much more competitive. Before there was almost an “oh, let us protect AI” attitude. That is not economically a good way to go about it. Now it will be an equal playing field. I think it is good for the nation to have AI finally being an economic entity that is responsible,’’ says Ronojoy Dutta, CEO, InterGlobe Aviation, which operates IndiGo.

Reminiscing about the first jet flight he took in January 1960, Sir Tim Clark, President, Emirates, says that a privatised Air India will, of course, affect Emirates but says he accepts competition.

Also Air India’s key to success is how it competes with Emirates and SIA. Price? On time service? Frequency of services to different destinations?  And in-flight service. Tata has been good with service in hotels. Can they use the same training methods to produce great onground and in-air service?  Also the great advantage AI has over Emirates and SIA is that there is a huge domestic traveller base, which neither of them have. BA pulled this off when privatised by Mrs Thatcher about 35 years ago. AI can do it too.

“I used to travel on Air India in 1958. It was the first Boeing 707 I ever flew on in January 1960. I was amazed that I as a kid of 10 getting on to a jet first time in my life and it was being operated by a carrier which was not BOAC but Air India. In those days they had fantastic plans for what India was going to do. Do not forget it was only 10 years after Independence and their thinking was expansive, it was global. And after that, well you know, the rest is history,’’ Sir Clark says.

It is not yet known exactly what plans the Tata Group has for Air India in the immediate future. They have made the right noise about wanting to return Air India to its glory days, but there are few details about what this would entail.

“Splitting off much of Air India’s debt will take some of the burden off the airline, as simply servicing the massive debt was proving a severe handicap. But the airline will, still owe significant amounts and the new owners will presumably have to renegotiate with creditors,’’ according to CAPA.

 What can work for the Tatas

While there are challenges for Tatas, there are a few things that can actually work in their favour and help Air India. Since Air India is a nostalgic entity for most of their employees they will support it in all possible ways. 

Tatas will be refurbishing the interiors of Air India, which though will come at a huge cost, but will be able to attract more passengers. In fact, after Tatas won the bid many frequent fliers have shown interest in flying Air India again. Tatas can also offer packages wherein a passenger cannot just check into their airline but also their hotels (Indian Hotels Company Limited which owns Taj) across the country and globe. This could work well for them.

Also, if Air India manages to increase its market share in the Gulf region there will be an increase in their revenues. International carriers have already begun to comment on the acquisition and are going to look out for ways and means to retain their own passengers. This indicates that there is a possible shift of passengers to Air India once it is refurbished and spruced up to match other carriers.

Aviation experts point out that Air India’s possible turnaround can be done if the Tatas function like British Airways did when it got privatised in 1987. In 1988, when the Indian government first proposed Air India’s privatisation it was inspired by BA. BA’s initial public offering (IPO) was part of Margaret Thatcher’s initiative. The BA stock was oversubscribed 11 times. It claimed to become the `World’s Favourite Airline’. The airlines fleet and route map were overhauled in the early years of Sir John King’s tenure with brand and advertising experts being recruited to change the airline’s image. Over 23,000 jobs were shed in early 1980s. Offering generous inducements for staff to leave led to losses of £545 million to the cost of taxpayers, but to benefit the future of the privatised company. 

Disposal of assets

Meanwhile, what happens to the special purpose vehicle (SPV) – Air India Asset Holding Ltd (AIAHL) – created by the government to hold some of the assets and liabilities of Air India, after the latter’s privatisation?

Tuhin Kanta Pandey, secretary, Department of Investment Promotion and Asset Management (DIPAM), the government department responsible for disinvestment of public sector companies, says that, “disposal of assets held by AIAHL will begin now as the government has identified the bidder of Air India. The ground handling subsidiary of Air India – Air India Air Transport Service Ltd – would be the first one to be sold off.

Groundwork has been done for (sale of) ground handling (subsidiary). Since, it was totally linked to Air India operations, it could not be independently sold. “Now that we have identified the acquirer for Air India, we can begin the process (for sales of ground handling business).” 

Before starting the disinvestment process of Air India, the government had created AIAHL to transfer some of AI’s debt as well as assets. These assets include subsidiaries like Air India Air Transport Services, Airline Allied Services, Hotel Corporation of India and Air India Engineering Services.

AIAHL also acquired non-core assets of Air India like land, painting, trademarks, etc. As part of the deal with the Tata group, liabilities worth Rs46,000 crore and non-core assets worth Rs14,718 crore were transferred to AIAHL. The Tatas acquired Rs15,000 crore of debt. “Liabilities will have to be paid and assets would be sold off,” says DIPAM Secretary.

Lastly, the tech giant Tata Consultancy Services may have some synergies in the aviation space in terms of software support and it could be a lucrative business in terms of technology. It is learnt that Ratan Tata has credited the decision to bid for Air India to the group chairman N. Chandrasekaran. The decision to bid was arrived after a due diligence was undertaken under Chandrasekaran’s leadership. 

The challenge for Chandrasekaran is to focus on how to achieve a turnaround.

Details of the buyout

The Cabinet Committee on Economic Affairs (CCEA) – empowered Air India Specific Alternative Mechanism (AISAM) comprising of Union minister for Home Affairs and Cooperation Amit Shah, Union minister for Finance & Corporate Affairs Nirmala Sitharaman, Union minister for Commerce and Industry Piyush Goyal and Union Civil Aviation minister Jyotiraditya Scindia approved the highest price bid of M/s Talace Pvt Ltd, a wholly owned subsidiary of M/s Tata Sons Pvt. Ltd for sale of 100 per cent equity shareholding of Government of India in Air India along with equity shareholding of Air India in AIXL and AISATS. The winning bid is for Rs18,000 crore as Enterprise Value (EV) consideration for AI (100 per cent shares of AI along with AI’s shareholding in AIXL and AISATS).  The transaction does not include non-core assets including land and building, valued at Rs14,718 crore, which are to be transferred to GoI’s Air India Asset Holding Limited (AIAHL).

The process for disinvestment of Air India and its subsidiaries commenced in June 2017 with the ‘in-principle’ approval of CCEA. The first round did not elicit any Expression of Interest. The process re-commenced on 27 January 2020 with issue of Preliminary Information Memorandum (PIM) and request for Expressions of Interest (EOI).

The original construct as per the January 2020 PIM envisaged (i) pre-determined, fixed amount of debt to be retained in AI (with the balance to be transferred to Air India Asset Holding Limited (AIAHL) and (ii) the sum of certain identified current and non-current liabilities (other than debt) to be retained in AI and AIXL would be equal to the sum of certain identified current and non-current assets of AI and AIXL (excess liabilities to be transferred to AIAHL).

The timelines had to be extended on account of the situation arising from the Covid-19 pandemic. In view of the excessive debt and other liabilities of Air India arising out of huge accumulated losses, the bidding construct was revised in October 2020 to Enterprise Value (EV) to allow prospective bidders an opportunity to resize the balance sheet and increase chances of receiving bids and competition.

The EV construct allowed the bidders to bid on the total consideration for equity and debt instead of a pre-determined, fixed debt with minimum cash consideration of 15 per cent for equity. As per both the original and revised construct, all non-core assets (land, buildings, etc.) are to be transferred to AIAHL and are therefore not a part of the transaction. It has been ensured that the interest of the employees and retired employees would be taken care of.

The transaction saw keen competition with seven EOIs being received in December, 2020. Five of the bidders, however, had to be disqualified as they could not meet the requirements set out in the PIM/EOI, even after allowing them an opportunity for clarification. The Request for Proposal (RFP) and draft Share Purchase Agreement (SPA) was issued on 30 March, 2021.

Air India provided comprehensive information through the Virtual Data Room to the qualified bidders who were also provided access to inspect the assets and facilities being offered as a part of the transaction. A large number of queries from bidders were responded to. On request of bidders, the bid due date was extended to 15 September, 2021 so that they could complete their due diligence before submission of bid.

The final SPA containing detailed terms and conditions and the respective responsibilities to meet the conditions precedent for closing the transaction including release of government guarantees prior to closing was agreed upon prior to bid submission. Two sealed bids were received on the due date along with non-financial bid documents and bid security from the two qualified bidders.

In line with the approved procedure for strategic disinvestment, a reserve price was fixed after the receipt of sealed financial bids for the transaction, based on valuation using methodologies as per the established process. After the independent fixation of Reserve Price, the already received sealed financial bids were opened in the presence of the bidders, who were as follows:

(i) M/s Talace Pvt Ltd, a wholly owned subsidiary of M/s Tata Sons Pvt Ltd for an EV of Rs18,000 crore.

(ii) Consortium led by Ajay Singh for an EV of Rs15,100 crore.

Both the bids were above the reserve price of Rs12,906 crore.

The entire disinvestment process has been carried out in a transparent manner, with due regard to confidentiality of the bidders, through multi-layered decision making involving Inter-Ministerial Group (IMG), Core Group of Secretaries on Disinvestment (CGD) and the empowered Air India Specific Alternative Mechanism (AISAM) at the apex Ministerial level. Transaction Adviser, Legal Adviser, Asset Valuer, professionals in their respective fields, have supported the entire process.

After issuing Letter of Intent (LoI) the Share Purchase Agreement will have to be signed following which, the conditions precedent would need to be satisfied by the successful bidder, the company and government. It is expected that the transaction will be completed by December 2021

Rising ATF

Running an airline is a cost intensive business. The outbreak of the pandemic led to mounting losses. Air India’s annual losses rose from Rs8,556 crore before Covid to about Rs10,000 crore. And, oil prices have been on the boil. Aviation turbine fuel (ATF) prices have gone up 80 per cent in a year. 

Jet fuel makes up anywhere between 30 to 40 per cent of the cost of running an airline in India and any increase will hurt the profit margins of airlines.

Refiners have been raising jet fuel prices as global crude oil prices firmed up on improved demand. ATF prices are revised every fortnight in India.

ATF currently costs Rs72,582.16 per kilolitre (kl) at New Delhi, up from Rs66,527 per kilo litre a month ago, according to Indian Oil Corp. Ltd (IOCL). ATF in Mumbai costs Rs70,880.33 per kl, while in Chennai it costs Rs74,562.59 per kl and in Kolkata the cost is Rs76,590.86 per kl.

Brent crude prices have surged more than 90 per cent in the last one year. Until February 2021, ATF prices remained lower than the year-ago period, but prices have been rising since then, Kinjal Shah, vice president of rating agency ICRA, says in a recent report.

With rising ATF prices, analysts estimate Indian airlines to remain largely loss-making during the coming quarters. 

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