No takers, ‘burden on government’: Alliance Air gets a Mayday call for burning taxpayers’ money.
Alliance Air via Facebook
Synopsis
Alliance Air’s north-east operations cost taxpayers INR6 crore per month. The aviation ministry has asked the airline, which is on the block, to submit a roadmap to address this situation. The question is: will this affect its flight to find a suitor?
In January 2012, when Religare group-promoted Air Mantra became the first company to land a civilian aircraft at Kargil airport, hundreds had gathered to witness the historic moment even though mercury had dropped to -20 degrees. Once the 17-seater plane carrying Jammu & Kashmir’s then chief minister Omar Abdullah came to a halt, the now-extinct airline’s CEO Sandeep Bhatt made an unusual demand. According to a government official who was
In January 2012, when Religare group-promoted Air Mantra became the first company to land a civilian aircraft at Kargil airport, hundreds had gathered to witness the historic moment even though mercury had dropped to -20 degrees. Once the 17-seater plane carrying Jammu & Kashmir’s then chief minister Omar Abdullah came to a halt, the now-extinct airline’s CEO Sandeep Bhatt made an unusual demand. According to a government official who was present there, Bhatt demanded viability gap funding from the state government so that the airline could operate daily flights to the region which became famous after the 1999 India-Pakistan war.“He [Abdullah] was very upset. He said it was not the place to ask for funds, and any such proposal, if at all, should have been first discussed and approved by the state cabinet,” the official recalls.Though Air Mantra’s inaugural flight to Kargil had happened amid much fanfare, the airline declined to continue operations on this route.To be sure, connecting India’s remote towns and hilly regions is a priority for the central government, which introduced the Air Connectivity and Aviation Infrastructure in North-East Region scheme in 2022. While the intent is clear, it nevertheless raises an important question: What will be its bearing on taxpayers?Reality checkData analysed by ET Prime shows that state-run Alliance Air, which connects India’s smaller towns and operates flights to the country’s northeastern states, has been sometimes carrying as few as three passengers a month while billing the exchequer an astonishing INR6 crore. Effectively, this translates into INR2 crore per passenger. Between April 2022 and June 2023, the airline carried around 1,500 passengers to the north-east, which cost around INR100 crore (INR6 lakh per passenger of taxpayers’ money). 105705781Alliance Air gets funds from the central government under the north-east connectivity scheme for flying from Dibrugarh in Assam to Arunachal Pradesh’s hilly towns such as Ziro, Itanagar, and Tezpur. These flights are operated by Hindustan Aeronautics Ltd’s (HAL) 15-seater Dornier ‘Make in India’ planes, two of which are stationed at Dibrugarh for these three-city flights.While the government has been releasing funds under the said scheme since last year, the matter has now become the centre of a debate if a note by the civil aviation ministry, which was reviewed by ET Prime, is anything to go by.“The objective of the scheme is to provide efficient and sustainable air connectivity in the north-east region so as to reach masses…but not more than 60-70 passengers have travelled on such routes, which is not even 1% of India’s total population,” the ministry pointed out in its internal note, adding that the said scheme is not achieving its objective and is a “burden on the government”. Therefore, airline must “submit a roadmap, or measures to overcome such situation,” it said.While it is indeed a ‘burden’ on taxpayers, the government may find it difficult to pull the plug on this scheme due to a couple of reasons. Firstly, the airports connected by Alliance Air are of extreme strategic importance owing to their proximity to the China border. Secondly, HAL’s Dornier fleet is the first ‘made-in-India’ civilian aircraft, and hence, it is seen as a significant stride in the government’s ‘Make in India’ push.“In my time, there was no one flying enough to the northeast,” says former Air India chairman Rohit Nandan who headed the airline from 2011 to 2015, adding, “But now, most have started [services]. So why should not private airlines shoulder some social responsibility?”According to him, a proper route-traffic study should be carried out and the government subsidy should be allowed only if there is future potential in such routes. Airlines, meanwhile, should better utilise their planes to generate revenues and seek minimal monetary support from the government.“If all this is to promote a HAL plane, then it has no logic. But if these routes can develop into good markets in the long term, then it makes sense,” Nandan adds.But how can an airline, which is uncertain about its future, plan for the long term?No takers?Carved out of its parent Air India, which was taken over by the Tata Group last year, Alliance Air was put up for sale by the government soon after. But despite conducting roadshows, investor interest has been tepid.The airline with 21 planes, of which 19 are ATRs, has 1% of the domestic market share and registers an annual revenue of around INR1,200 crore, of which nearly INR100 crore comes from the regional connectivity scheme Udan and the government subsidy for the north-east corridor. “If the government wants, Alliance Air can be grown quickly. The incoming investor can add 10-12 narrow-body Airbus A320 or Boeing 737 planes and straightaway start flying new routes,” says a person who has held talks with potential investors to start a new airline, adding, “Strategically, it makes sense for someone to lap it up.”Indeed, Rakesh Jhunjhunwala’s Rare Enterprises-backed startup Akasa Air has grown into a 20-plane airline in just a year, and it is currently demanding a valuation of around USD650 million-USD1 billion. Alliance Air not only has the advantage of having a 21 plane-fleet, but it also can fly to overseas destinations without having to wait to build a 20-plane fleet like Akasa Air to comply with the rules. Alliance already connects Sri Lanka with a Chennai-Jaffna flight. The expectation is that when the government sells the airline, it will also clean up its books like it did for Air India wherein it took over nearly INR45,000 crore of the INR61,000-crore legacy debt. 105705783For the Tatas, meanwhile, Alliance Air could be a strategic fit as the group needs feed from smaller cities to bolster passenger traffic in its international and domestic flights. Former Air India chairman Nandan, though, is of the view that Alliance Air should be resurrected as an independent airline.“Since a [IndiGo-Air India] duopoly has been created now, Alliance Air can be a great asset,” he says, referring to a potential new investor with deep pockets, adding, “Why should everything be put in the pocket of two players? In government, we think for 30 years, and so, we should create new airlines or help one ramp up to enable healthy competition. It should be given to a third player.”Startup Fly91 (which has raised INR200 crore including from private-equity firm Convergent Finance) and Bird Group which runs Roseate Hotels and Resorts, did show some interest in the airline during the roadshows.“I shouldn’t be endorsing competition, but it is a good airline. It is definitely a good asset at the right price,” says Fly91 founder Manoj Chacko, adding that he and his investors eventually decided to focus on their own startup airline as they do not want to deal with any legacy and merger issues.Bird Group, according to a decision maker in the company, will look into the clauses when the actual proposal for privatisation is floated by the government even though it is keener to acquire Air India’s ground-handling unit, Air India Airports Services Ltd, which too, is on the block besides Alliance Air and Air India Engineering Services Ltd.“Nothing has happened in Alliance for months now, perhaps because of the impending elections. I hope their aircraft leases do not start expiring soon,” says the Bird official.Indeed, the government will have to keep Alliance Air going and it has already been given INR600 crore to clear old debt carried forward from the Air India days. It is worth noting here that there were no buyers even for an airline like Go First which had a 10% market share though riddled with grounded planes and faulty engines. Deep-pocketed conglomerates such as Reliance have not shown any interest in airlines business while the Adani Group, which runs several airports in the country and faces restrictions in airline stakes, is reportedly interested in Sri Lankan Airlines.Empty cockpitsWhile Alliance Air airline has improved its digital presence, moved to a new passenger-reservation system and has put in place its own sales team (the function was earlier outsourced to Air India), it is grappling with a few serious problems.One of them is pilot attrition. Nearly 40 of its turboprop-trained pilots have left in the last one year alone to join rivals including Akasa with a 20% hike in salaries. As a result, the airline is forced to cancel 10-20 flights every day. It now operates around 110 flights daily with 17 of its 21 operational planes and 170 pilots. Some planes are grounded because of engine issues. The airline even had to face a pilot strike in April this year over salary issues.“We are not able to compete with others because of these reasons. The other problem is that the company is also under disinvestment, so the government will not give us any additional funds,” a senior Alliance Air official tells ET Prime.To tackle pilot shortage, the airline has placed a proposal before its largely aviation ministry officials-led board, seeking a 20% hike in pilot salaries while the compensation of other employees may be revised over time. But will that be enough to retain pilots in an airline that’s staring at an uncertain future? And more importantly, can thegovernment continue to pay subsidies worth as much as INR6 lakh per passenger flown to the north-east?Industry experts suggest that clarity on these fronts will emerge once next year’s general elections are concluded.The final cutAs for the Air Mantra flight that landed at Kargil airport in the peak of the winter more than a decade ago, Abdullah didn’t promise any state grant to bridge the gap between the airline’s cost of operations and revenues. A couple of months later, the two-plane airline founded by billionaire Ranbaxy promoters Shivinder and Malvinder Mohan Singh was grounded. Both the brothers were later sent to jail on account of alleged financial fraud. (Graphics by Sadhana Saxena)