Desicritics Author: Capt. Anup Murthy

Indian Aviation: First Blood Drawn?

Capt. Anup Murthy — Wed, 4 Apr 2007 07:25:55 EDT

I have been away in Macao and almost missed some stories from back home in India. When I got to Singapore, the first news from India that caught my eye was about Indus Airways stopping flights and shutting down. It brought back memories from the 1990's when start-up airlines in India started folding, one after another.

Funnily enough, I had written in December last year, that some of the airlines in India are run on ego and not on sound business plan and I had predicted their closure. This included Indus, as evidenced from one of my replies to a comment from a reader. My post got some bouquets and brickbats, as it usually does, with some going on to refute my prediction. I had mentioned that the reasons for my observations were based on pure math and also from knowing that the wrong aircraft for the wrong routes and wrong pricing can never add up to profits.

The writing is on the wall, I had said, sounding more like a doomsday prophet than an aviation professional, and some had questioned my observation about corporate investment in the airline sector.

I had said in my blog then "There's another curious activity going on these days that's also making news. Financial companies, investment firms and other corporate types are buying up small equity shares in some of the Airlines. I don't know why and some seem keen on picking up larger equity. I don't know who is advising these guys and I'll bet there is an army of CA's and MBA's in ties involved."

I did hear some sound bites from the "experts" about this and they were saying: "these are very positive a signs indeed, signs of maturity, such an investment lends credibility etc" and all that hogwash these guys come up with. And they get paid a mint, mind you, to say all this rubbish".

I had written about specifically the TATA group having picked up a stake in Spice Jet and that I thought was a mistake. This led to a question from a reader asking why I did not support corporate investment in Aviation business. I had felt that while corporate investment in the Airline sector was a good thing to have, it did not make much sense for a company to invest blindly. TATAs do know a thing or two about Aviation but on the advice of some of their financial consultants it seems, they had found it prudent to pick up some equity in Spice Jet.

So, coming to Spice Jet's current cup of woes, the latest news projects Spice Jet's loss this quarter is up by 395%. Staggering? It would be for any one else but as I mentioned, some one keeps injecting some fresh life in the scene and things keep floating for a longer time.

I have heard that the other Airlines are all keeping a positive attitude - that's good because that's all they can do; keep positive. They will paint red all over the skies with their results this year, notwithstanding bravado statements from the "glitterati" of aviation. The sector is set to lose something like Rs.1,800 crores and thats no small change! Like I said before, it's been good for the flying public, cheap fares and all. My advice, stop complaining and keep flying. When more airlines fold up, the fares are heading north for sure!

So, we have the first blood drawn in this aviation scenario. Luckily it has not been a bloodbath in terms of an all out price war and the intention of one Airline to see another go down the tubes and fail. My blog on Macao had to wait for this piece, just had to get this one off my chest.

Indonesia - Why Is It Unsafe To Fly There?

Capt. Anup Murthy — Thu, 8 Mar 2007 00:15:55 EST

The Indonesians are caught between the devil and the deep blue sea. The cheapest way to get around the 17,500 odd islands that make up the country is by using the ferry service (ships plying the Indonesian seas). Now, we all know from the rather distressing frequent news of ferry disasters in Indonesia killing hundreds of people even last month and that is not the greatest way to travel. So, the next best option to travel (the only alternative means of transportation, I may add) is by air of course.

However, the year started off with two accidents/incidents related to Adam Air's Boeing 737's already (Adam Air is a private Airline) and the latest state owned national Carrier Garuda Airways crash of today the 7th March 2007 at Yogyakarta makes it three in three months. So, what does the average Indonesian do? Take chances with the devil or the deep blue sea?

It seems like a lose-lose situation for them. Not to mention the country is going through some very rough times due to frequent earthquakes (including two measuring 6.6 on the Richter scale and even felt here in Singapore by yours truly) and a Tsunami that changed the lives of hundreds of thousands.

What can be done? Firstly, the Indonesian Government must start walking the talk because each time there is an accident (in the air or by sea), they come out with bold statements about the need to reform the system and get things organized in a professional manner. In defense of Garuda, it may be said that they have had a somewhat good safety record and the last accident they had was in 2002 and their maintenance and operations standards are perceived as being better than the rest of the private flock.

Numerous accidents and incidents in aviation have occurred recently in Indonesia. While the jury is still out on the cause of these events, I may remind the reader of the two crashes of Adam Air this year. One reportedly in bad weather and the second one last month of the Aircraft fuselage splitting open and dangling after making a landing! The country's politicians made the usual noise about grounding all the 737's in Indonesia after these events but one could see them plying the skies later on.

Today's Garuda Airways (the National Carrier) crash happened in good weather and the cause may be known sometime later. The distressing thing is that the aircraft continued to burn for a long time after the crash and one could not see any real fire fighting activity to douse the aircraft. One wonders at the type and quantity of equipment they have (or do not have) to handle such situations.

They really need to pull their socks up and do something about improving air safety. It is a serious issue. Permits must not be given to all and sundry for operating decrepit old aircraft that need proper and professional maintenance frequently. Pilot training and standards for training all operations personnel must be improved with emphasis on dealing with any situational emergencies in a professional manner. Operators must be subject to proper audit of documents, upkeep and updating manuals and ensure the manuals are also up to International standards.

I believe that the authorities have a shortage of manpower to deal with the volume of work especially since airlines have mushroomed rapidly in the recent past and the Department of Civil Aviation has not expanded at the same scale to deal with so many operators and aircraft. Only with the use of proper training, proper infrastructure, increase in the number of trained aviation inspectors and proper maintenance practices can they succeed in improving the state of affairs. But, are they up to it? Is the International Civil Aviation Organization (ICAO) up to it? Or are they sleeping too, while Indonesians suffer more mishaps? I just don't understand.

Singapore’s Seletar Airport

Capt. Anup Murthy — Sun, 21 Jan 2007 10:32:22 EST

I am sure that many don’t know that the tiny city-state of Singapore with around 4.5 million residents has more than one airport. In fact it has several of them. Most visitors to Singapore only know about the one that is called Changi International Airport and that is the gateway to this country. Older generation people, who have been to Singapore in the 70’s and 80’s will remember that they used to get in and out of the Country from an Airport called Paya Lebar. Well, that is still there, although not used for civilian flights anymore.

I am located at another civilian airport in Singapore known as Seletar Airport. There are some charter and scheduled flights to nearby destinations from this airport and it also has a small immigration and customs counter. Seletar is primarily a maintenance base for civilian aircraft. I have seen airlines from India bringing in their jets for maintenance. I’ve also been involved in bringing in corporate aircraft from India for maintenance here last year.

The airport is located towards the north of the Island of Singapore. As one takes off towards the straits, the Malay Peninsula comes up immediately. The runway and airport complex is surrounded by two Golf courses; one of them is a public course. Near the small passenger terminal on the West camp side, is the Seletar Reservoir, a large fresh water lake and this reservoir is one of the primary sources of drinking water to Singapore. The scenery is green and fabulous, in this entire area. I have seen water monitor lizards casually walking across the greens and some of the arterial roads around here as well. I’ve heard rumors of pythons lurking around, but not seen one yet.

Singapore Government has announced that Seletar is going to be made into an Aerospace hub attracting massive investments, aircraft hangar and maintenance facilities and creating around 15,000 new technical jobs. This was announced mid 2006 and they have begun works in earnest. Singaporeans are confident that projects announced by the Government are taken up expeditiously and this one, with new buildings, new roads, runways extensions, tarmac expansions and many civil works will be completed in two years.

Well, I can’t say we can compare with anything in India with this; India’s pace of doing things is pathetic. I have heard that Singapore plans everything 10 years in advance. We Indians only talk about shining, if you get my drift.

Seletar is fast becoming the preferred charter aircraft base in Singapore. One of the new companies that I deal with is called Chiron Flight Services that flies Learjet 35A long range medevac (medical evacuation aircraft). Their Thai registered and operated aircrafts fly to all points in Asia Pacific, at a moment’s notice, to evacuate patients who are in dire need of medical care. It is expensive to evacuate patients this way but it is normally paid by the insurance company or by high net worth individuals.

The aircraft is a high speed jet equipped with a life suport system, IV pump, Oxygen, defibrillators etc and accompanied by medevac certified doctors and nurses. It’s like a hospital in the air that can keep the patient stable while in transit. The company has done flights to all neighboring countries and even as far as Australia and Japan in the past one month alone. (Contact Bryan for urgent medevac at flightoperations@chiron.com.sg or call the hotline at +65 6483 0660. )

What India needs is not a plethora of new airlines but more general aviation business such as charters, medical evacuations and such. Some noises were made in aviation circles in the recent past that such operations would start in India soon. Medevac flights in India today are done without real medevac equipment on board nor dedicated aircraft for the purpose. They just use normal charter aircraft, remove seats and put in a stretcher at best. I hope investors look beyond the usual run-of-the-mill airline business ideas and look into the vast potential that exists in General Aviation.

As for the airports, we do need much improved facilities, enough has been said by all on this subject. A start can be made simply by clearing up the heaps of garbage, stray dogs wandering around on the tarmac and pariah kites circling over rotting garbage at Indian airports. It's not too late to learn lessons from others, including tiny but dynamic Singapore.

Airline Stock Manipulated?

Capt. Anup Murthy — Fri, 19 Jan 2007 01:36:52 EST

I read with interest, an online edition of the business standard dated 19th Jan and that article mainly dealt with poaching of engineers by the Airlines in India. Poaching in this case refers to Aircraft Maintenance Engineers who jump from one company to the other, at the drop of a hat, lured away by a competitor for a higher pay (what else has people drooling about these days but moolah?). That's all going to be stopped, like the scheme they invented for stopping the poaching of pilots, says the article. Not exactly Veerappan style poaching but close.

Anyway, what interested me more about this article is that the Author goes on to mention that the Airline industry is contemplating on an increase of the fuel surcharge, to cover the increased cost of fuel. Now this is what I'd like to talk about and have done so in my blog in the past, maybe I stand vindicated. The Airlines are justified in making such a move, if they actually do it.

The Government made some noises about reducing the fuel bill burden on the Airlines by perhaps cutting taxes on the product. This prompted some readers of my blog to question me about whether I was wrong about my assessment, that the rising costs of fuel was going to be a major cause of downfall of the Airlines. I stood my ground saying that a reduction in tax wasn't going to be quick and in any case wasn't going to be meaningful.

Then another thing happened. I was in India briefly a couple of weeks back and saw on CNBC something strange happening on the BSE Mumbai Stock Exchange. The price of crude oil fell drastically in the World market. The BSE in Mumbai reacted to that news in frenzy, driving up the stock of some Airlines. I was just holding my head in my hands. Is the stock market a bit too euphoria driven and less driven by hard facts? Did they think that a drop in world crude prices was going to benefit Airlines in India (or anyone else) so quickly?

I began to wonder how mature this market really is and whether everything is based on rumors and speculation based on sentiment rather than cold hard figures. Let me tell you why. Firstly, a fall in global crude prices means nothing for operators in India. The Oil PSU's and the Ministry then decides whether to do something about it, or not. The Business Standard article goes on to say that jet fuel prices actually went up, prompting the operators to ponder about another increase in fuel surcharges. What does that tell you about the Airline stocks and their manipulations by the brokers at the BSE? Was this a case of jumping the gun or bad valuation as has been done in the Airline stocks since they became public, in the first place? Were more investors lured into a false sense of security and their money invested unwisely? These are the questions to ask.

The industry needs support, there's no doubt about it. We need all of them to survive and do well, as a consumer that is in our best interest. What they need is level headed decision making. As an investor in Airline stock, you'd need to make level headed decisions as well. See who is in it for the long haul and whose fundamentals are strong. Don't expect to make huge piles of cash because even worldwide, Airlines that have made consistent profits have not seen their stock rise substantially.

The Airlines have an association that comes together to fight common issues such as "poaching" but perhaps they are not asking each other to stop killing each other in pricing, revenues and other areas. Not much use having such an association that can be a mutual "backscratchers club" only on certain issues and a mutual "backstabbers club" when it comes to survival.

Beg Your Pardon, But Your English Is Showing: Language Problems in Aviation

Capt. Anup Murthy — Wed, 10 Jan 2007 00:43:22 EST

I used to be the head of a scheduled Airline in the Maldives and the team that I had put together was multi-national. We had a US pilot, a German pilot, a Burmese pilot, Sri Lankan Accountant, all engineers working on the Aircraft from different parts of India (Bengalis, Malyalees, Kannadiga and Tamilians) and of course local Maldivians working in the operations and other departments.

Needless to say, there were all these people speaking in English with one another, but with their own ways and accents. There were many hilarious moments while working with all these people because of the lack of understanding between them with respects to various terms and accents. This was true not only among the foreigner and Indians, but also between Indians themselves. The Bengalis would pronounce everything "V" with a "B" and the natural Malyalee accent was misunderstood by the others etc.

One time, one of the cockpit instruments was not working as per specs and the pilot reported the same to the Indian Avionics engineer (he's the one who fixes avionics - instruments and radios in the cockpit). The pilot was American. The pilot told the engineer that the particular instrument was "broken and needed to be fixed." As is normal, after the pilot reported the matter to the engineer and went home, the engineer went on to remove the instrument and check it, and re-installed it. He made an entry in the logbooks that he found the instrument to be OK and nothing broken.

The pilot came back again on the next day's flight and told the engineer that the instrument was still broken. Perplexed, the engineer this time dismantled the instrument completely and refitted the same and reported to the pilot that the instrument was OK and he did not find anything broken. I happened to be on the scene during this conversation and found the hilarity in the misunderstanding between the two people speaking more or less the same language.

As most American readers would know, when something is not working, the common place term for it is that it is broken. Even a car has a breakdown you see, not necessarily that the car has split in half! Same situation here. The pilot meant to say that the instrument was not working properly (not a critical part, though) and the engineer understood as some part of the instrument had broken loose. That's why he had repeatedly removed the instrument and re-installed after making sure nothing was broken and loose inside!

During our weekly meetings with heads of all departments, issues were brought up, even mundane ones, to ensure that everyone understood the other properly and that safety was never compromised due to any misunderstanding.

The problem of understanding each other is still an issue with so many foreign pilots (due to shortage of Indians) flying the domestic Airlines. Their communications with ATC (Air Traffic Control) have been a problem, not only due to faulty communication systems on the ground but also due to misunderstanding of various accents and ways of speaking the same language - English.

Indian Aviation in 2007 - The Prospects

Capt. Anup Murthy — Fri, 5 Jan 2007 10:34:35 EST

This time last year, I wrote a post called year end aviation review on my blog. Here's my review/Q&A/Synopsis/lop sided theories, call them by any name.....

What's the bottom line going to be in 2007 for the average Indian flyer?

For the consumer, lower fares, more options to travel and better connectivity. Simple, anyone could have told you that. For the Airlines in India, more red ink as each one of them battle for the same piece of the ever expanding pie. Ever expanding pie must mean higher levels of income and profitability for the Airlines, right? Sorry, that was too easy, wasn't it? Passenger growth has been phenomenal, no doubt but the average yield has actually gone down.

Airlines here think their strength is going to be due to economics of scale, more airplanes, more seats, more routes and they can control pricing. Well, it works in theory, in some analysts theories. Ground reality is that, similar overcapacity in the U.S. drove a lot of the majors into bankruptcy courts forcing them to cut employee strengths, wages, return airplanes that they had leased, cancel orders for new purchases of airplanes and so on.

Noted analysts in the US say that this led to a reduction in seat capacity a bit and now the same analysts are predicting a banner year for US Airline industry because of the seat capacity reduction, costs under control and excellent passenger growth. This has prompted the carriers there to actually increase fares by 15-20% for economy class and reportedly 40% for business class, and still going full. That's great and the analysts are calculating a profit (hold your breath) of US$2.3 Billion (that's right, billion, with a "B"), despite the rising cost of fuel, as against more than $35 Billion in losses the US airline industry suffered between 2001 and 2005 and $11 Billion losses in 2002 alone. Now, this is not to say that all carriers are going to be profitable, just that some of them that got the basics right, finally, are going to make it and have made it. One carrier that's noteworthy (no, not SouthWest, which is going to make record profits yet again) is Continental Airlines. American Airlines is going to show more revenue from fewer seats.

What lessons can we learn in 2007?

Anyway, let me not digress from the Indian aviation scenario. What lessons can we learn from the US experience? Well, firstly, let us admit that even though we'd like to think that we are the brainiest people on the planet that's heading out to becoming a superpower and that we don't need lessons from anybody, the ground reality is that aviation stumps the best guy around. It's a nasty business that bites you back, if you are an investor. It is time to look around. Wake up, smell the coffee and realize that your business plan should be your own and not driven by the desire to surpass some one else. You should identify what's going to make you money and how to cut costs and make it more efficient, not be driven by this crazy concept that "I will be the largest Airline one day and will build up a nice brand and be able to control everything". Wrong! That's only going to make a bigger mess for you and the rest of the industry that can't seem to get a grip on things. I'll stop the lecturing here and move on to the next question.

What's 2007 going to hold for investors in aviation?

An analyst in the US said Airline stocks must come with a warning (much like cigarette packs): "trading in Airline stocks may be hazardous to your wealth". I say this again to the Indian public, if you think you are going to make money from investing in Airline shares, be prepared to lose all of it next year. In the short term, there's going to be no miracle. Remember the past in India, and all the Airlines that went bad whose shares were trading at such high levels then and now the same shares are not worth not even the paper they are printed on.

Some Airlines claim that they don't need to go public and they have enough reserves to last the distance. Well, good for them, let the passenger make use of their lovely services till they run out. Some Airlines think that they will get into profitability as soon as they go International. I don't know who advises these guys but margins on International flights are coming down plenty and the number of carriers and their frequencies for the same set of destinations is increasing all the time. It is not a magic formula "lets go International and we will be doing well".

All sounds depressing? It could have been worse but some deep pockets by all players concerned seem to be delaying the ultimate - going belly up. The media in India will, by and large, keep aviation in the news making it sound glamorous and chic to be in the business. That's one way to beat depression, read nice stories about aviation. The good news will come to those that can act in the right manner.

Investments are needed, not in the Airlines flying the trunk routes. They are needed for developing the vast majority of unused, undeveloped airstrips connecting the hinterland of this vast country. Air Deccan has opened services to many hitherto unknown places and that's been a good thing for the people who live in those parts of India and has been good for the local economy there as well. I can bet that commuter routes fare yield is a lot better than trunk routes yield and that is another subject for another day.

How is the quality of my travel going to be in 2007?

Well, this is an easy one. It's not going to be better than what you had in 2006. In terms of congestion, circling over major airports, ground and in-flight services will all be the same, matter of fact you'll be slightly worse off regarding congestion and crowding because nothing's improved in that area. Hyderabad and Bangalore's new airports are slated to open little later, perhaps in 2008 and that may reduce congestion at these airports but may increase problems connecting to the airports by road or rail, especially in Bangalore.

The prices are going to remain low; I hope that for god's sake, not lower than current levels. You as consumer should be happy with what you are paying now and maybe pay a bit more. It is in your interest that competition remains and that competitors are aplenty. If not, you'd back to square one with few competitors and monopolistic pricing of tickets and that's going to hurt you. The Airlines, those surviving of course, will be laughing all the way to the Bank. At least that's what it is, in theory!

Bail Out!

The Civil Aviation Ministry has already proposed some measures to bail out an industry that is actually sick but operating, go figure this one. Praful Patel is the best CAM India's ever had and we can debate this till the cows come home but he's the one that has revolutionized aviation. It is not his fault if the Airlines can't get it right.

His latest proposal is to allow 74% foreign investment in this sector as opposed to 49% existing presently. These investors have to be non aviation related funds, that is, they should have no holding of any kind with any other Airlines in the World. Fair enough. This may interest some funds to invest in the industry, prolonging the eventual demise of the company and hopefully, in some cases, helping to restructure some costly debt and make the bottom line a bit more manageable.

He has also restricted issuing any new licenses to new entrants that may have the same business plan that every one else currently has. This may somewhat help in curtailing non-serious investors who just want the name and not much more than that. He still has some options to help the Airline industry and may have to pull a few more rabbits out of the bag, so to speak, to ensure that there is no wholesale collapse of the ailing operators. Some of the operators are just waiting for that to happen and that's no good for you and me, in the long run.

Happy New Year to all my readers! Safe landings in 2007!