The Tata-Singapore Airlines joint venture Vistara will now have to wait until 2015 to begin operations due to a delay in getting their Air Operator Permit (AOP). Originally Vistara applied to the DGCA for the permit in April and had planned to launch services by September 2014 but now the delays mean that even if the permit is given tomorrow the airline will find it hard to launch forward bookings for flights within a six week timeframe.
"We are in the final phase of securing the air operator's permit (AOP). We are working with the regulator to complete the remaining process expeditiously and look forward to launch our services soon after receiving the permission," a Vistara spokesperson said in a statement.
That would put the launch of the airline right in the middle of the winter season, which for an airline operating across the north of India (from its base in New Delhi connecting Mumbai, Bangalore, Hyderabad, Goa, Chandigarh, Srinagar, Jammu and Patna in the first year), is a period dominated by poor weather conditions and flight cancellations as a result. Vistara could still take the planned five aircraft on lease by March 2015, but the current AOP delays have left two aircraft on the tarmac doing nothing thus far.
Vistara plans to operate 87 flights in the first year, with five leased A320s, and then scale it up to 301 flights by the fourth year. But perhaps the main reason for the DGCA delaying the AOP is the shadow of the Delhi High Court action brought against the airline which contests that the 49% FDI rule does not apply to new start-ups but only existing airlines.
All these Vistara delays are good news for the existing airlines in India but those same operators have more to cheer about today as the Tripura regional government has announced that it has slashed Value Added Tax (VAT) on Aviation Turbine Fuel (ATF) by 4% over the weekend from the existing 22% to 18%, with immediate effect.
And well they should too! The VAT of ATF has been killing airline services of late and for what? Recent figures released show the total tax collected from ATF in some Indian provinces has reduced by 50% following VAT increases on ATF. Only two years ago, the revenue generated was over Rs ten crore, but after the sharp rise of VAT this year, it was reduced to Rs 5.5 crore as airline responded by circumnavigating local suppliers and cutting services as Jet Airways did when it suspended its operations from Agartala following the increases this autumn.
Could we argue that the new progressive Indian government is starting to make an impact in its pledge to assist airlines? Things are looking up.
The one airline that needs a bit of extra help at the moment is SpiceJet and management there are in "exploratory and preliminary stage" talks with investors about raising fresh capital that it needs to return to profitability, the budget airline said in a regulatory filing today. "We wish to clarify that a few parties have approached us and evinced interest in making investments into SpiceJet Limited” the airline said. SpiceJet shares are all over the place at the moment, on Friday last they closed some 15% up after it was reported that an investor had been found, now today as this clarification was made the shares slipped back slightly by 2.37%.
Despite measures to cut costs and increase revenues, SpiceJet remains unable to return to profit without a capital injection and even then it would require between nine and 12 months following recapitalisation before it could report a profit according to the management team.
Also today, flydubai successfully raised $500 million through a five year Sukuk. The order book was over six times oversubscribed demonstrating the strong investor appetite for this paper. The $500mn five year Sukuk priced at a profit rate of 3.776%, equivalent to 200 basis points over the five-year USD Mid-swaps. The issuance is a stand-alone. Proceeds of the issuance will be used for general corporate purposes and refinancing. See Middle East, Finance below for further details.