Charter Operators Seek Policy Rescue for a Crippled Business

BizAvIndia (BAI): Why does India’s charter aircraft industry appear to be in crisis?

BAOA: I must tell you how we’ve got to this point. In the charter world, there are very tight budgets. Three factors have taken place in the last 10 years which have increased input costs. One, the pay of Pilots. In small airplanes, it is 15-18 per cent of the input costs. Because of shortage of pilots due to massive orders placed by scheduled airlines, the latter have sucked in most of the pilots from non-scheduled operators. To retain them, the pay of good pilots has gone up 1.5 times.

The second input is fuel. It used to be 35 to 45 per litre. It has now gone up to between 60 to 70. It had peaked at 75, but now it is generally around 65. I would say that fuel constitutes around 25 per cent of the input costs for charter operations. This, too, has gone up by about 1.5 times.

The third input is maintenance. Unfortunately, unlike even smaller countries like Israel, which became Independent about the same time as us, India has not made big leaps into MRO. India is nowhere near Israel in MRO. So, we continue to be heavily dependent upon the USA for our maintenance because that’s where most of the charter aircraft are sourced from. And since the Dollar has gone up from 35-45 to 65-75, the maintenance costs for spares and inputs have gone up by about 1.5 times by Dollar value alone, not taking into account any inflationary pressures in foreign countries where overhaul is done. So, three kinds of inputs have gone up 1.5 times each.

The fourth input, which was under control so far, was ground handling. Charter companies, particularly in Delhi, used to do their own ground handling. But about four years ago, DIAL (Delhi airport operator) planted these so called concessionaires. And in 2019, they unilaterally raised the cost of ground handling by 1.5 times, with taxes being extra. Increased handling charges, too, account for 15-18 per cent of costs.

While input costs on four major factors have gone up by 1.5 times, the revenue, or the price at which you can sell, hasn’t gone up as much. For a typical aircraft, it has crawled from 60,000 to 85,000 per hour, with the result that the margins have almost disappeared.

INDAMER MJETS IS CHARGING EXACTLY THE SAME HANDLING COSTS AS BIRD EXECUJET AIRPORT SERVICES. THE BASIC STRUCTURE OF THESE COMPANIES IS ENTIRELY DIFFERENT. HOW CAN THE FINAL COST BE THE SAME IN BOTH CASES, DOWN TO THE LAST RUPEE? THE CHARTER OPERATORS THINK A MUTUAL COLLABORATION HAS ALREADY TAKEN PLACE.

The charter operations were once flying. Then, as the costs started increasing, they started floating. Now, they are underwater. I told the Government that unless they do something to make them float again so that they can hope to fly, they will further drown. The Government response was, it is up to charter operators to increase prices. Unfortunately, there are two types of charter operators. One is ethical operator, the other is unethical operator. The latter category is creating problems. They would cut corners and negate efforts to sell at the correct price. If you’ve got to stay (in business), you’ve got to lower prices to subsistence levels. Let me assure you, the owners today in companies like ours - Saraya Aviation and Orbit Aviation - they literally get nothing. I have no ready solution for this because some of the bigger operators are not part of BAOA. Some of them resort to practices which I will not support.

BAI. What is your expectation from the Government in addressing this crisis?

BAOA: One way the Government can help is to bring the fuel under GST, which is a pending demand. They should also look at Non-Scheduled Operators (NSOPs) as people who can positively contribute to the economy. It has happened in other countries. It can happen in India also. But the Government views charter operators as the rich man’s club, which is totally false. The owners leave the company managers to run their own show. Only when the charter company is in serious trouble, they may agree to bail it out, for the time being, with warnings that you’ve got to be on your own. This is the hard truth.

BAI. Are we looking at a situation where only the bigger players can survive?

BAOA: That’s right. People with one or two or three aircraft find it very difficult to survive. It is only people with larger number of aircraft and bigger budgets who will stay in business.

BAI: What are the minimum thresholds, the minimum numbers which will help operators stay afloat?

BAOA: It’s not just the numbers, it’s the type of aircraft you operate. For passenger travels, the public inclination is gradually shifting from very small aircraft like turboprops to jets. Among politicians, people from entertainment world, corporate world, I find a clear tendency to shift from smaller to medium aircraft, medium to bigger aircraft. So, the companies have to develop the capacity of having aircraft which people prefer. But small companies do not have the budget or financial capacity to do so. Hence, I find the number of charter operators decreasing. As per DGCA data of September 2019, only 99 NSOP operators are in business now.

Another point that has been flagged to the Government is that India is one of those few countries where the term NSOPs has been coined. Actually, the NSOPs perform exactly the same role as Scheduled operators, carrying passengers from Point A to Point B. But Scheduled Operators get a number of concessions which unfortunately NSOPs are not given, whether it’s customs duty exemption or many other factors. So, Government intervention is required to ensure a level playing field for both. If they do this, it will help NSOPs a lot.

The third thing, of course, is the scale at which people operate. This is where people have been talking about management companies which are quite successful abroad. People in the NSOP world cannot import aircraft because of the Customs duty which is levied, and it is decided at the point of entry without considering what purpose it is going to be utilised for.

BAI: What policy remedy do you seek?

BAOA: If the Government aligns the taxes based on the final usage of the aircraft, the management companies can get a fillip. Today, the foreign management companies are taking away the moolah, which is the right of the Indian companies. Supposing I can import an aircraft, in the end if I use it for NSOP purposes, then the rules are different. If I use it for private purposes, then the rules are different. Basically, Customs is very high for private use, and the scheduled operators do not pay any duty whereas we end up paying, both in import of aircraft as well as spares. On spares, duty is between 5 and 18 per cent depending upon the nature of the item. They have a list for differential Customs rate for different spares. I have not understood this. These kind of things need to be rationalised.

WHILE INPUT COSTS ON FOUR MAJOR FACTORS HAVE GONE UP BY 1.5 TIMES, THE REVENUE, OR THE PRICE AT WHICH YOU CAN SELL, HASN’T GONE UP AS MUCH, WITH THE RESULT THAT THE MARGINS HAVE ALMOST DISAPPEARED

There are a number of issues. For example, the right of charter operators at Delhi airport was snatched by this scheme involving concessionaires. Earlier, Operators were doing their own maintenance. This was withdrawn abruptly by DIAL by planting two Concessionaires. The maintenance costs have increased up to 18 per cent depending upon the weight of the aircraft.

The Government has to take steps to streamline all this, take a rational view, and do what is justified. Otherwise, a number of companies are finding it really difficult to manage to carry on, and some of them are at the point of folding up. That for a developing economy is a retrograde step and Government has to intervene to do things optimally. These issues have been raised with the Government in various forums and it has taken notice but things need to happen really fast. That’s not happening.

BAI. What if the Government takes a view a view that businesses must survive on their own and not expect bailout by the Government?

BAOA: The role of the charter sector is not clearly understood by the powers that be. For example, we are the feeders for pilots to Scheduled Operators - the airlines. The charter sector is where pilots gain flying experience. They start here after their 250 or so flying training hours. They get almost 1,500 hours on NSOPs cost, and once they get an ATPL, which is round the corner at 1500 hours, they walk away to scheduled airlines.

So, the beneficiaries are scheduled airlines who suck in all the pilots trained by non-scheduled chartered operators at a great effort. Anyone who’s done 1500 hours, he gets his transport permit, and then he walks away. We actually need pilots to be retained who have more than 3,000 hours, so that we can do both VIP and non-VIP flying. Minimum 3,000 hours are required. It’s a great effort to retain those pilots who are experienced. Their cost has increased almost at par with scheduled airlines, where the budget of operations is entirely different.

BAI: What is the proportion of VIP flying in India’s charter operations?

BAOA: 25-30 per cent of business is from flying VIPs during elections. In other times, it is 10 to 15 per cent.

BAI: You mentioned that charter operators struggle to retain experienced pilots. In the middle of poaching of pilots by scheduled airlines, how do you ensure adequate standards of air safety?

BAOA: We do so at high cost. To retain our top pilots, we had to hike their pay by 50 per cent. We had no choice. Our main pilot has more than 6,000 hours. We tend to take only experienced pilots. We don’t take people with lesser experience because sometimes in rough conditions, it is the experience which matters. You may have 2,000 hours but you may find it difficult to tackle tough conditions.

BAI: With spiraling costs, how are you keeping the business going?

BAOA: With costs going high, you have to fly minimum number of hours to recover additional costs. There’s something called fixed cost, which is the cost of maintenance and pilots. Variable cost is only when aircraft flies. So, there’s a break-even point where fixed costs get recovered. After that, profit slightly increases. Unless you have good pilots and aircraft are well maintained, this is not feasible.

NSOPS PERFORM EXACTLY THE SAME ROLE AS SCHEDULED OPERATORS, CARRYING PASSENGERS FROM POINT A TO POINT B. BUT SCHEDULED OPERATORS GET A NUMBER OF CONCESSIONS WHICH UNFORTUNATELY NSOPS ARE NOT GIVEN. SO, GOVERNMENT INTERVENTION IS REQUIRED TO ENSURE A LEVEL PLAYING FIELD FOR BOTH.

Touchwood, Saraya and Orbit Aviation, which I work for, have 20,000 hours in 10 years without any incident. One has to do things exactly according to Aviation Standards and manuals if you are to make sure that you do not have an accident, and that is where sometimes the standards differ. We were doing our own maintenance. There was no problem then. But now we’ve given our aircraft to Bird Executive Airport Services, one of the DIAL concessionaires. When you give your aircraft to someone else, you cannot monitor their standards 24 hours. In between visits, you can never be sure. Actually, the ideal procedure is to maintain your own aircraft but this right has been snatched by one or the other method. How can you ensure that safety is 100 per cent and fool proof?

BAI: But can’t you go to a smaller airport to maintain aircraft yourself at cheaper rates and to your satisfaction?

BAOA: People have tried places like Jaipur, Aligarh and Hissar and Bhiwani. But the cost of ferrying the aircraft gets added. Pilots have to be accommodated or ferried back. It increases costs on many accounts. Delhi is a natural hub for aviation. The technical manpower for handling and maintenance is available in Delhi. In making this skilled manpower travel elsewhere, you lose their productive hours. And it becomes difficult to relocate them.

BAI: Is there any progress on your effort to get ground handling charges treated as aeronautical charges?

BAOA: Yes, last week there was a meeting at the Ministry of Civil Aviation (MoCA), and the Ministry’s Economic Advisor was chairing it. We had represented this to her and it appears that MOCA has understood our point of view. But what follow-up steps are to be taken is not clear. It is up to the Government to take steps which are practical and which can be implemented.

BAI: How many aircraft does your company Saraya operate, and what’s the average quantum of flying you do?

BAOA: Three turboprops. One aircraft has a passenger capacity of eight and the other two can carry six passengers each. The average monthly sortie is one and a half hours up and one and a half hours down. In a month, we’re flying 10-15 days as per demand. And there are also charter seasons and non-charter seasons. For example, in rainy season, people travel less, particularly for leisure. Generally summer and rainy season is a low charter season. October to April is the charter season. So, the averaging has to be over the year.

BAI: What sort of aircraft are the larger operators flying?

BAOA: Club One is a member of BAOA. They have about five-six bigger aircraft, which have longer range. At Orbit, we have one Gulfstream 150 with a capacity for 6 passengers. It can fly to Dubai non-stop in about two-and-a-half. You normally take four passengers and reserve fuel under ISA conditions. The range of smaller aircraft is much less. For example, we can fly only within India or from India to Nepal.

BAI: What would be the charter cost for a Gulfstream to fly to Dubai?

BAOA: Between 2.5 to 2.9 lakh per hour.

BAI: Do DGCA regulations require you to train your pilots on simulators?

BAOA: Yes, on Gulfstream 150, our pilots go regularly to the USA to Flight Safety International once in six months for Pilot Proficiency Check (PPC) and once in a year for Instrument Rating (IR) and other things. More rigorous training is for IR, which may take five days (as compared to two days for PPC). They have to be routed on simulators as per DGCA regulations.

BAI: You are learnt to have complained about a mutual collaboration of MRO services at Delhi Airport. How did this happen?

BAOA: For Saraya Aviation, we were doing self maintenance since 1992 at Palam. In 2015-16, they planted these concessionaires and they sent a letter saying you cannot do your own maintenance. You have to go to either of the 2 appointed concessionaires. In the spirit of fair competition, they said there would be three concessionaires, but we ended up with only two. This in itself is a violation of Competition Commission of India regulations. You need a minimum of three concessionaires so that cartelisation is difficult. But with 2 players, cartelisation is very easy, and people think it has already taken place.

One concessionaire is Bird ExecuJet Airport Services. The other is Indamer MJets. ExecuJet and MJets are foreign companies, which were supposed to have infused funds and technical know how to improve standards. But I think they are now almost like sleeping partners. Indamer MJets is charging exactly the same handling costs as Bird ExecuJet Airport Services. The basic structure of these companies is entirely different. How can the final cost be the same in both cases, down to the last rupee?

The charter operators think a mutual collaboration has already taken place. Handling charges are weight based. The tables of the two concessionaires are exactly the same. Anyone can check. This is a point for government intervention. We’ve taken up this point with the Government. The concessionaires are paying an undisclosed royalty to DIAL. The operator is made to pay hangar fee, maintenance charges and management charges, the last being royalty which goes to DIAL.