The Banking and Strategy Initiative

Chillin' out till it needs to be funded

Prioritising and growing India's Defence / Aviation spending

Kingfisher troubles

Vijay Mallya’s refusal to call his Air Deccan purchase a low cost airline addition to its portfolio, is not without reason. With sales

Billionaire Naresh Goyal, chairman and founder...

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taxes of 30% and more (depending on state jurisdiction over and above federal taxes) ATf costs are nearly 50% of the airlines’ revenues, more for Kingfisher. ATF prices were further increased even as petrol prices were cut nationally and the OMCs reported a huge bleed in Q2 results from subsidising even Diesel and Kerosene and Gas majors flunked the test of bearing the LPG and CNG burden and refused to put up more for the required expansion of India’s energy infrastructure. ATF prices were last cut in September and October at Delhi (

Just a year and a half ago , Jet fuel prices were 33% lower at nearly 42k per KL including taxes. Internationally too the quarter has been tough for global airlines, ATF prices averaging $3.3 a gallon for American over $2.2 last year but still  these costs were only 35% of its operations and they are at an equal risk from unionisation and staff costs from the same

Releasing India Aviation from the death grasp

With fleet rationalisation one can hope for a little economic respite for the otherwise 350 flight strong Kingfisher day schedule, bu

Vijay Mallya, Chairman, UB Group, India, parti...

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t it needs more Jet Konnect features and efficiencies other than interest rate cuts to show up with a winning plan for that INR 6 bln working capital enhancement/ conversion of overnight lines to LC backed lines presumably for Aircraft lease costs  and the inevitable reduction of debt and interest loads that will let it fly high and join the thin ranks of airlines turning in a profit. United Airlines has testified twice in the last decade that it can be done, even if Vijay Mallya finds the thoguht of comparing with profitable cousin Naresh Goyal who may have more investors signing up when Aviation policy is released this week allowing 26% to 49% FDI interest in the Airlines incl. from Foreign Airlines.

Do you also realise that steep fare increases make it very difficult for the Airlines to recover their costs as the Rupee falls without end and Oil does not really correct to a material low!!

However, after Kingfisher, there are others and the Airlines sooner than later have to pay up for new aircraft and order 100s more as the current fleets are hardly likely to contain and run with India’s air traffic requirements as passengers continue to grow at double digits every year, enough to warrant continuation of the airport’s expansion plans into Phase II in Bangalore Mumbai, and even Hyderabad and Delhi to handle 20-30 mln passengars a year as was originally envisaged.

Spending for Global Aviation majors

Boeing 737-300 "Goslar"

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Even though China has ordered 200 Boeing Aircraft  worth $19 bln this year, it has ambitions to make the same amount in its indigenous innovation initiative, and is looking at strategic ties with Brazil’s Embraer to get it off the ground Boeing’s new 737MAX had 500 order commitments on day of its release in August 2011, the September quarter alone yielding 310 737 orders and 125 777’s with the Dreamliner having started deliveries at the top of the range.  However, Europe alone is seeing $450 bln in defence reduction and at this time when Asia is growing to be a dominant market, India has to be able to negotiate the best price and the longest deals for Airbus, Boeing and even the Brazilian “newcomer” Boeing alone standing on $273 bln in business or 3500 aircraft to deliver globally (Boeing transcript)

Airbus parent EADS reported an order book of $ 668 bln in its Q3 results, more than $130 bln added in a single quarter Both Airbus and Boeing report profits though razor thin EADS reporting a $1 bln profit for the quarter(EADS results)

Reading the tea leaves

India also supports the global aircraft industry allied with Defence spending with two shortlisted EADS aircraft and Light Combat


Image by tommmmmmmmm via Flickr

Helicopters, C130 Hercules transports and more to upscale its requirements along the China border and till no whas been amazingly forthright and market friendly without bein overtly socially minded or stunted in its aviation policy.

However, growth of private enterprise in the area to grow Aviation infrastructure including the rare private investments in Maintenance and defence and in engendering growing business across the skies where it has to avoid further burdening its fiscal report card and strengthening both banks and Aircraft and Aviation companies in growing in size and stature

Indian currency also falling through marks a big setback in that enterprise. However whoever is invited to invest in this sector has a whole has to come therefore with not a few million but rather 100s of billion for us to consider being a viable alternative.



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