With financial concerns about the Indian airline industry at an all-time high following the Jet Airways layoff fiasco, airline companies in India are now being asked by banks to pledge aircraft as collateral before getting loans approved. And that’s not all, the companies may also be forced to pledge their future ticket sales and company shares too.

PLEDGE TO STAY AFLOAT!

Loss making Indian airlines have no other alternative other than to abide by the banks’ directives if they are to stay afloat by raising loans. Domestic carriers are now flying through turbulent skies - they have to pay up dues to the tune of Rs 2,962 crore (592,400,000 USD) owed to state-run oil companies. It may be noted that that almost all domestic carriers are in the process of raising working capital after the Indian government eased immediate financial concerns for them by allowing them to repay the amount in six equal installments with no interest levied. Normally, airline companies guarantee payments on purchases of items such as jet fuel through bank guarantees, or letters of credit.

Concerns about banks in India now refusing to hand over letters of credit even as the airlines are pledging securities were voiced at the inter-ministerial group meeting held this week in New Delhi. With the situation poised to run out of control, the inter-ministerial group is now looking toward the Ministry of Finance to organize an interface between the Indian airlines and the banks to ease the situation.

IN DEEP TROUBLE

As the situation continues to be grim, Inida’s domestic airline companies are finding it tough to even think of raising money from banks. Airlines are also said to be not in a position to command an attractive interest rate since Indian banks are also in deep trouble. The demand by banks that collaterals are a must hasn’t gone down well with airline majors as they are against such a practice.

Domestic airline executives have been quoted as saying that while many banks have been demanding shares from listed airline companies, others are even turning down proposals of working capital and are imposing stringent conditions including demanding that future ticket sales and planes to be put up as collateral. SpiceJet, Jet Airways and Kingfisher Airlines are the only listed airlines in the country.

Meanwhile, banking officials have said that Indian banks are not averse to giving loans, but the loans will be provided only on the banks’ terms. The fact is that the lending institutions are not ready to go bankrupt by giving loans to ‘unviable’ businesses.

DUES AND MORE DUES

A rough break-up of the dues owed by major airline players to oil companies are truly astonishing. The National Aviation Co of India Ltd (Nacil), Jet and Kingfisher owe amounts to the tune of Rs 886 crore, Rs 1,057 crore and Rs 983 crore, respectively, to Indian Oil Corporation, Hindustan Petroleum and Bharat Petroleum. The three airline majors currently boast of 70 per cent share of the air passenger market and account for most of the dues owed to state-run oil firms.

Sources point out that, of this, an amount to the tune of Rs 2,131 crore is already overdue. However, smaller players such as SpiceJet Ltd, InterGlobe Aviation (which operatesIndiGo), Paramount Airways and GoAirways India (which runs GoAir) do not owe oil firms any money against fuel purchases or if they do the dues are so small in amount. It is also feared that oil companies might see losses mounting to Rs 1.4 trillion this fiscal over sales of petroleum products.

Meanwhile, the situation is fast approaching an undesired climax with airlines expected to touch $2 billion losses this fiscal. This in effect would be double the amount the airline companies lost in fiscal 2008.

OUTSTANDINGS AND THE REPRIEVE

The government in the meantime has come under sever attack for allowing the airline companies to clear outstanding dues in fuel bills in six monthly installments. Raising the credit period has also not been welcomed well by the parliamentary Opposition. The Indian airline industry had been given time till March 2009 to clear their fuel bill dues.

Jet Airways got time till March 2009 to pay its Rs1,057 crore due to oil companies. Kingfisher will have to pay its Rs 983 crore dues spread over six months. Meanwhile NACIL (the state-run company which has Air India and Indian under its wings) will have to clear the Rs 886 crore dues during the same period. It is also expected that the Ministry of Finance will also come out with some tax sops in a bid to help the airline industry stay afloat.