Only consumer goods may see green shoots amid coronavirus pandemic

Aviation: The ensuing cash flow disruption could possibly lead to breach of debt covenants if the outbreak escalates and results in a prolonged near-zero revenue situation

Shipping: Container terminals at the major ports in India have already reported a few blank sailings or cancellation of port calls. This could intensify in the coming weeks depending upon the level of outbreak in India’s major trading partner countries

Tourism: The travel bans in place translate to a foregone revenue of around US$ 5 bn for the industry from foreign tourists alone. The magnitude of the impact would be much larger when foregone revenue from domestic tourists is also accounted for

Retail: While textile, footwear, fashion accessories, furniture, and other household appliances will have revenue losses, food and other FMCG essential services segments will likely face a surge in sales driven by panic buying and hoarding

Livestock: Given that the average farm size in India is 8,000 birds with a 40-day production cycle, a typical poultry farmer would lose around Rs 10 lakh. Losses of this magnitude with no signs of price recovery are expected to drive many players out of business

MSMEs: Only 53% of large companies in India pay their suppliers on time. Slowdown may force large firms to scale down production. The ensuing cash flow disruptions will lead to delayed payments to MSMEs, triggering credit defaults and permanent business closures of highly leveraged MSMEs, and rendering many people jobless

Gems & jewellery: With the growing number of Covid-19 cases, revival of the sector does not appear imminent. Given that the gems & jewellery contribute to 12% of India’s merchandise exports, the impact of the slowdown in global demand is expected to pull down India’s overall exports very steeply

Electronic goods: High level of dependency on imports makes the sector highly vulnerable to foreign exchange risk coupled with fear of supply constraint. Of the total demand for electronics in India, about 50-60% of the products and 70-80% of the components are imported

Automotive: Normally, auto companies maintain a one-month or two-month inventory, however if the supply chain remains disrupted for next two months, the Indian auto industry may face significant revenue loss

Drugs & pharma: The impact of COVID-19 outbreak on the drugs and pharmaceuticals sector is expected to be moderate. The sector contributes to 1.2% of India’s gross value added and 7% of manufacturing value added

Textiles: The Covid impact on the textile sector is expected to be moderate in the coming weeks. However, if the outbreak remains prolonged then the impact is expected to be high

Airline industry braces for prolonged recovery from coronavirus crisis

International seat capacity has dropped by almost 80% from a year ago and half the world's airplanes are in storage, new data shows, suggesting the aviation industry may take years to recover from the coronavirus pandemic.

Carriers including United Airlines Holdings Inc and Air New Zealand Ltd have warned they are likely to emerge from the crisis smaller, and there are fears others may not survive.

"It is likely that when we get across to the other side of the pandemic, things won't return to the vibrant market conditions we had at the start of the year," said Olivier Ponti, vice president at data firm ForwardKeys.

"It's also possible that a number of airlines will have gone bust and uneconomic discounts will be necessary to attract demand back," he said in a statement.

ForwardKeys said the number of international airline seats had fallen to 10 million in the week of March 30 to April 5, down from 44.2 million a year ago.

Data firm OAG said several years of industry growth had been lost and it could take until 2022 or 2023 before the volume of flyers returns to the levels that had been expected for 2020.

Cirium, another aviation data provider, said around half of the world's airplane fleet was now in storage.

"While many of these will be temporary storage, many of these aircraft will never resume service," Cowen analyst Helane Becker said in a note to clients. "We believe the airline industry will look very different when we get to the other side of this."

Planemakers are looking at drastic cuts in wide-body production amid a slump in demand for the industry's largest jetliners, manufacturing and supplier sources said.

Deliveries of long-range jets like the Boeing Co 777 or 787 and Airbus SE A350 or A330 have been particularly badly hit as airlines seek deferrals and many withhold progress payments.

FLIGHTS CUT, STAFF FURLOUGHED

Vasu Raja, American Airlines Group Inc senior vice president of network strategy, told Reuters that U.S. domestic demand will remain weak into May, citing the lack of bookings.

The airline is cutting between 70% and 75% of domestic flights in April and about 80% in May. For both months it is cutting nearly 90% of its international flights.

British Airways said on Thursday it has struck a deal with its unions to suspend more than 30,000 cabin crew and ground staff in one of the airline industry's most dramatic moves yet to survive the coronavirus pandemic.

With global travel in turmoil as the virus takes hold around the world, BA's owner, IAG , said it would also cut capacity by 90% in April and May, and scrap its dividend, in a desperate bid to survive the worst crisis in its history.

Southwest Airlines Co said on Thursday it intends to apply for U.S. government aid to help it ride out the sharp drop in travel demand.

"We still don't know the severity of this situation. We still don't know how long it will last," Southwest Chief Executive Gary Kelly said in a video message.

U.S. Treasury Secretary Steven Mnuchin on Thursday confirmed investment bank PJT Partners Inc will advise the Treasury on negotiations with passenger airlines over a stimulus package worth up to $50 billion, half in loans and loan guarantees and half in payroll cash grants.

Many Democrats and airline labour unions are urging Mnuchin not to exercise the right to demand equity or warrants in return for the grant portion, as they seek to ensure carriers take the funds and pay workers.

"We need to get this done quickly," Mnuchin said. "We'll make sure that we strike the right balance ... taxpayers get compensated."

"We want to keep our airlines intact."

Indian aviation startups to pitch for support at Singapore Air Show 2020

Startups from India with innovative technologies in the aerospace, civil aviation and air services are expected to pitch for support to industry heavyweights such as Airbus and Boeing at the Singapore Air Show 2020 next month, the organisers said.

The Singapore Air Show would be organised from February 11-16 and will witness the participation of some 65 top aerospace and defence companies.

The show, which is being organised by Experia Events Pte Ltd, will also be joined by 1,000 industry exhibitors from 50 countries and 55,000 trade visitors from 150 countries.

"We all know that there is a lot of technologies that these companies hold. We are looking forward to see these startups during pitching sessions," said Leck Chet Lam, the managing director of Experia Events Pte Ltd during the pre-show press conference on Monday.

More than 60 startups from 10 countries, including India, are scheduled to make presentations on a wide range of domains during the show.

The presentations will cover sustainability, smart transport, automation, smart manufacturing, digital solutions, artificial intelligence and cyber security apart from other vital subjects.

"The startups are to pitch for investors and industry support from the global aviation industries, which would include chief executives of industry heavyweights such as Airbus and Boeing," said Leck.

The Indians have been long-term participants as they value participating in the Singapore Air Show, he added.

Also, planned along the show is the Singapore Airshow Aviation Leader Summit to be attended by more than 300 aviation experts.

The summit is to be held from February 9-10 and will be addressed by industry experts, including Ajay Singh, chief executive of SpiceJet, the organisers said.

After challenging 2019, will 2020 be jet, set and go for Indian aviation

India’s aviation and telecom sectors looked alike in 2019, with cut-throat competition ensuring cheap deals for customers but pushing companies in the red. State-run companies bled in both sectors — national carrier Air India needs to be privatised, and telcos BSNL and MTNL need to be revived.

SpiceJet Chairman Ajay Singh once said both aviation and telecom sectors had “monopolistic” players. Though he did not take names, he was hinting at privately-owned budget carrier IndiGo, which has a 50 per cent share of the country’s domestic passenger market, and Reliance Jio, which emerged on the scene three years ago and became the largest telecom player with a 35 per cent revenue share. Jio continued to grow, even as its rivals posted record losses in 2019.

For airlines, too, 2019 was a year they would like to forget — despite opportunities being created by Jet Airways discontinuing flight operations in July 2019, and the price of aviation turbine fuel (ATF), which accounts for over 40 per cent of their operating costs, remaining low.

To grab the slots vacated by Jet, some Indian airlines, especially low-cost ones like SpiceJet and IndiGo, went on an aircraft-leasing overdrive. However, within five months, domestic seat capacity not only filled the void created by Jet’s exit but was 3.5 per cent higher than a year earlier. Since Jet’s grounding did not create a real seat shortage, airlines could not jack up ticket prices.

Worse, as the Indian economy slowed and they had to keep tariffs low to fill up seats, airlines’ yields came down. Forecasters had expected a passenger growth of 14 per cent — with Jet in business — but they were clearly off the mark. They now predict FY20 passenger growth to be 5 per cent or less. According to research organisation Centre for Aviation (Capa), private airlines could incur a loss of over $600 million this financial year.

Smoother skies?

In December 2019, the three-year-long telecom price war ended with the three top operators raising tariffs. Airline tariffs had also seen some increase a month earlier. Now, will 2020 turn the tide for India’s aviation industry? It will take much more than tariff hikes to get the industry back in the black, say airline executives.

“We saw tariffs going up by 10-12 per cent in November, after falling in the previous quarter. That is a good sign, but airlines have to rationalise their prices to sustainable levels. Zero- to seven-day prices need to go up by 15-20 per cent, and average price by 10-15 per cent higher to bring viability back to the business in 2020,” says Sanjay Kumar, formerly the chief operating officer of Air Asia and chief commercial officer of IndiGo.

Rivals accuse market leader IndiGo of stifling competition by keeping prices low to fill up its new planes. This sounds like telecom operators Bharti Airtel and Vodafone-Idea’s predatory pricing accusation against Reliance Jio. Just like Jio, IndiGo executives rubbish these allegations and instead say they have no choice except matching low-cost carriers’ fares.

A positive trend in 2020 will be slow capacity additions, even contraction according to Capa. Sanjay Kumar (quoted earlier) sees the pressure on yields easing, with no more than 60 planes being added by all airlines put together.

Last November, regulator Directorate General of Civil Aviation (DGCA) asked IndiGo to replace Pratt & Whitney engines on its fleet of almost 100 Airbus A320 and A321neo aircraft by January 31. Analysts see this deadline forcing the airline to cancel flights and reduce capacity for at least two quarters. IndiGo has already lowered its capacity growth projections for 2019-20 from 30 per cent to 25 per cent, and it hopes to maintain the same level next financial year, too.

Boeing suspended production of 737 Max planes last December, making SpiceJet’s expansion programme uncertain. Awaiting a word on new deliveries, the airline has had to ground 17 of these aircraft.

AirAsia India, the Tata group’s joint venture with Malaysia’s AirAsia, which was earlier considering doubling its fleet to 40, now seems to have scaled back.

The good, the bad, and what might lie ahead

Airlines also hope to get a relief from the government, like the two-year moratorium on payment of pending spectrum dues given to telecom companies. They are also pushing for ATF’s inclusion in the list of items on which Goods and Services Tax (GST) is levied. If that happens, airlines’ operating cost would come down by 10 per cent.

What does the different carriers’ future look like in 2020?

IndiGo: Despite its grounded planes and uncertainty over P&W engines, IndiGo is expected to relentlessly push for capacity and market share. Irrespective of consolidation, the airline should be able to increase its market share beyond 50 per cent this year.

In August 2019, IndiGo quietly overtook Air India to become the largest Indian carrier in terms of international seats deployed. As much as 30 per cent of its additional seat capacity in the first half of 2019-20 was for the international market. However, its foray into mid-distance routes like Istanbul, and new routes like Vietnam’s Ho Chi Minh City and China’s Chengdu, has had a mixed result. This year, IndiGo, which flies only narrow-bodied aircraft on international routes at present, will induct wide-bodied aircraft and also start mid-haul flights.

SpiceJet: India’s second-largest airline, which overtook IndiGo in adding seats in the first half of 2019, SpiceJet has looked to grab the opportunity created by Jet’s closure. It leased more than 30 Boeing 737 planes that Jet Airways operated previously — to make up for its grounded Max planes — and got valuable slots at saturated airports like Mumbai. But inducting Jet’s planes also increased its cost of operations, as Max planes were more fuel-efficient. That, according to analysts, has been showing in SpiceJet’s growing losses.

SpiceJet will have to relook at its fleet portfolio in 2020, considering the suspension of Max planes by Boeing. The airline is reportedly in talks with Airbus, but it has not placed any orders yet. It has denied reports that it is looking to raise over Rs 750 crore via qualified institutional placement (QIP) of shares in order to tide over its financial pressure.

Vistara: The Tata group, which runs AirAsia India as an LCC, is accelerating the expansion of its other airline, Vistara, which is a full service carrier. It plans to double Vistara’s fleet of over 40 planes in FY20 to boost its international business. Vistara will get two wide-bodied aircraft by March 2020. That will enable its entry into long-haul and mid-haul markets, where it will have no local competition if you discount the tottering Air India.

AirAsia India: The Tata group has held back the expansion of AirAsia India, especially as the government has not permitted it to fly overseas despite meeting the condition of a 20-aircraft fleet. However, Tatas’ cautious approach might change as they take over more operational control of the airline from partner Air Asia. The group’s strategy for the domestic aviation market needs ironing out, say experts. “Sometimes, the two airlines (AirAsia and Vistara) are seen competing with each other in in pricing, despite their costs being different. There has been no attempt to build a synergy; there is room for some cost reduction, since both have A320 aircraft,” says an aviation expert.

Air India’s fate

A much-awaited event for the aviation industry this year will be the proposed privatisation of Air India. The national carrier was unable to leverage the closure of Jet, as 26 of its aircraft were grounded, and it had no money for maintenance checks. Capa has increased its estimates for Air India’s 2019-20 losses to $600 million from $150 million earlier.

The government has agreed to halve Air India’s total debt to Rs 28,000 crore — a large portion of that aircraft loans — by transferring some of it to a separate company. The government has also decided to fully exit the carrier and allow a new buyer to cut its workforce.

But will anyone want to buy Air India? The decision will depend on two factors, say prospective bidders. First, the reserve price that the government sets for bidders. And second, whether or not the investor will be ring-fenced against past dues, legal cases, and other potential disruptions, with a legal framework. Even so, given its shrinking market share and financial losses, selling Air India is not going to be easy for the government.

Opportunities in India narrowing after Jet shutdown: Star Alliance CEO

"India is a big aviation market and Air India provides the important domestic network for our members but opportunities in the market are narrowing with Jet Airways being non-operational," Star Alliance CEO Jeffrey Goh said on Sunday.

Star Alliance is a grouping of 28 airlines, including Air India, which became a member in July 2014.

Emphasising that Air India is an important representation for the alliance in the Indian sub-continent, Goh said the airline provides very important domestic network for its members to connect into.

"Indian market is a big market and is a very fast growing market... clearly things are changing very fast in the Indian market in connection with what has happened with Jet Airways. I think certainly to that degree possible, it will help (that)... Air India will have higher capacity and better yields because there is less capacity in the market," he said here.

To a query on whether there could be a second Indian carrier such as low cost carrier IndiGo as a Star Alliance member, Goh said the grouping is positioned for having a full member as well as a connecting partner model.

"We also have the ability to integrate less traditional airlines whether they are hybrid, regional or low cost airlines. We are positioned to address both the situations. We are not closed for business, whether an airline in India is interested in full membership or connecting partner model. It is more a question of value proposition that you can bring to the network," he said.

Talking on the sidelines of an IATA (International Air Transport Association) event, he stressed that an airline should prove its business case if it has to be a member or connecting partner.

"The challenge obviously is that there is IndiGo but in the Indian market there isn't such a credible portfolio of opportunities with Jet Airways not operating anymore... The market is narrowing in terms of opportunities but we are going to be convinced that if we have a member or another connecting partner they are bringing something that Air India doesn't. At this time, how fast the Indian aviation market is going to grow... We have got to be mindful how that market is trending and not integrate a member just for the sake of integrating," he said.

IndiGo is India's largest domestic airline with a market share of nearly 50 per cent.

Star Alliance was founded in 1997, with the aim to offer worldwide reach, recognition and seamless service to international travellers.