The momentum in air passenger traffic witnessed in FY2024 is expected to continue into FY2025, ICRA said. File. Image for representation.
| Photo Credit: The Hindu

Domestic air passenger traffic grew 5.1% year-on-year to an estimated 138.9 million in May and was significantly higher by around 14 per cent than pre-COVID levels, credit ratings agency ICRA said on Thursday.

ICRA also said the outlook on the Indian aviation industry is stable amid the continued recovery in domestic and international air passenger traffic with a relatively stable cost environment and expectations of the trend continuing in FY2025.

The airlines’ capacity deployment in the previous month increased 6% year-on-year and about 2% higher than April 2024, it added.

According to the agency, the domestic air passenger traffic for FY24 was around 154 million, with a year-on-year growth of around 13%.

It thus surpassed the pre-COVID levels of around 142 million in FY2020, the ratings agency said, adding that the international passenger traffic for Indian carriers stood at around 29.68 million last fiscal, registering a year-on-year growth of around 24%.

Moreover, the industry witnessed improved pricing power, reflected in the higher yields (over pre-Covid levels), it said.

The momentum in air passenger traffic witnessed in FY2024 is expected to continue into FY2025. However, further expansion in yields from the current levels may be limited, it added.

Average ATF price stood at ₹103,499/KL in FY2024, 14% lower than ₹121,013/KL in FY2023 but significantly higher by 58% than the pre-COVID levels of ₹65,368/KL in FY2020, according to ICRA.

In Q1 FY2025, the average ATF price remained higher by 5.4% on a year-on-year basis. In June 2024, it declined by 6.5% sequentially, the agency said.

Fuel cost accounts for around 30-40% of airlines’ expenses.

Around 45-60% of the operating expenses, including aircraft lease payments, fuel expenses and a significant portion of aircraft and engine maintenance expenses, are denominated in dollar terms.

Some airlines have foreign currency debt. While domestic airlines have a partial natural hedge to the extent of their earnings from international operations, overall, their net payables are in foreign currency, it said, adding that the airlines’ efforts to ensure fare hikes, proportionate to their input cost increases, will be the key to expanding their profitability margins.

The pace of recovery in industry earnings is likely to be gradual owing to the high fixed-cost nature of the business, the agency noted.

The industry reported a net loss of around ₹170-175 billion in FY2023 due to elevated ATF prices, along with the depreciation of the rupee against the U.S. dollar, it added.

ICRA expects the Indian aviation industry to report a similar net loss of around ₹30-40 billion in FY2025 as seen in FY2024, which is significantly lower from levels of around ₹170-175 billion in FY2023, as airlines continue to witness healthy passenger traffic growth and maintain pricing discipline.

“I have leapt off a cliff. I can either grow wings or crash.” This is how a young trainee pilot describes his predicament after spending five years and ₹1.07 crore on learning how to fly, along with a steep employment bond of ₹50 lakh which locks him in for five years with the country’s biggest airline, IndiGo.

In his early 20s, Aravinth Nair* has already witnessed the cyclical and volatile nature of the aviation industry in his fledgling career. First, there was the closure of Jet Airways in 2019 just when he was preparing to embark on his flight training programme after finishing high school. That was followed by COVID-19 the next year when his training was temporarily suspended, even as the spectre of mounting interest on the loan incurred to pay his flying school fee loomed large. Then came the Go First closure in May 2023 that flooded the market with jobless but experienced pilots and delayed his induction at the airline, resulting in an extended wait before he could start repaying his loan. These are just some of the stressors that, unknown to most, hide behind the sheen of a “fat” pay cheque.

Costly training, illegal bonds

Add to this, the unpredictable training timelines that can stretch for up to four years before one can even land an airline job, and the loans incurred to pay exorbitant flight training fees ranging between ₹80 lakh and ₹1.2 crore that can take 10 to 14 years to repay. Pilots also find themselves tethered by “illegal” employment bonds of ₹20 lakh for Vistara or ₹50 lakh for IndiGo in the form of undated cheques, locking them in with the company for a period of two to five years at a fixed salary lower than prevalent market standards. Air India too requires new joinees to furnish a bank guarantee of ₹25 lakh for five years, for which pilots often pledge their fixed deposits or incur loans. These bonds or bank guarantees are in addition to costs borne by pilots for induction training of six to nine months at airlines; at Air India, this costs ₹14 lakh, while Vistara charges ₹12 lakh.

There is also the bureaucratic red tape that can mean three months to clear medical assessments and at least a two-month wait just to be issued a licence by the Directorate General of Civil Aviation. Such factors have a cascading impact on a pilot’s career as these delays could cause other permits to lapse even before one has secured a job.

‘Caught in a chokehold’

The multiple challenges involved in becoming a pilot in India today is also at the heart of the current unrest at Vistara. The airline’s junior pilots have strongly objected to a revised salary structure announced in mid-February which offers them a guaranteed flying allowance for 40 hours instead of the current 70 hours, resulting in a pay cut of 24% to 40% on a salary of ₹3.4 lakh per month. However, many find themselves, as one Vistara First Officer described, “caught in a chokehold” and unable to leave.

“Nothing went off as I had expected. Because there is unpredictability over jobs, I opted for IndiGo’s cadet training programme that cost me ₹1.07 crore five years ago but guaranteed a job at the airline. I paid a premium for a well-known brand and a complete end-to-end package that I hoped would also take care of complex and lengthy regulatory requirements,” recounts Mr. Nair, who is now a First Officer at IndiGo. But that’s not what happened, and the training itself took four years to complete instead of two.

‘Do-or-die situation’

Once he finished his training and joined IndiGo, the induction training for freshers like him was also delayed by four to five months as the airline hired 200 trained pilots from Go First after the latter shut operations.

The delay in induction meant that Mr. Nair would only receive 40% of his salary of ₹2.2 lakh, or ₹90,000 per month, until he was released to fly for the airline, resulting in a longer wait to be able to repay his loan.

“The financial burden is so huge that it is a do-or-die situation for me. I am in a position where I am forced to succeed,” says Mr. Nair.

Several First Officers at Vistara told The Hindu that while the new salary terms were not acceptable, they had no choice but to agree to them because of an ultimatum from the airline’s human resources department that not doing so would result in their ouster from the merged Air India and impact their upgrades.

‘Illegal pay cut’

“The new pay structure announced at Vistara entailing a pay cut for First Officers is illegal because it is a fundamental principle in labour laws that contractual terms can’t be altered to the detriment of an employee after he or she has joined the company. The conditions can be made more favourable though,” said aviation lawyer Yeshwanth Shenoy.

The Hindu sent specific queries to Air India, Vistara and IndiGo but all of them declined to comment.

“We are caught in a chokehold because aviation is a blackhole of money,” said a Vistara First Officer who has decided to stay at the airline as he is expecting an upgrade to Senior First Officer, which will mean a salary bump of nearly ₹1 lakh.

“Firstly, there aren’t many airlines left in the country and IndiGo is the only viable alternative. At some airlines like Air India, even appearing for a job interview requires spending upto ₹1 lakh for a simulator examination. And many First Officers can’t even go overseas as foreign airlines need an Airline Transport Pilot Licence which requires 2,000 hours of flying, which pilots don’t have so early in their career,” he explained.

Junior pilots ‘exploited’

Pilots across the industry are enraged over how Vistara’s new pay structure deliberately “exploits” junior pilots who are unable to reject the new contract because of their vulnerable position. The senior pilots, on the other hand, have received favourable terms where they will earn a sum equivalent of 70 hours of flying under the old regime by flying only 50 hours to 60 hours under the new pay regime.

Quitting an airline in India is also not easy. First Officers have to serve a notice period of six months, whereas foreign airlines like Etihad will only wait for three months for a pilot to join. Then there are employment bonds that tie up pilots for up to five years, and are “illegal”, according to Mr. Shenoy.

“These bonds violate Section 27 of the Indian Contract Act, 1872 which lays down that any agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind is void. As these are civil matters or disputes between a private person and an enterprise only an aggrieved pilot can file a legal case but which pilot will challenge his airline and bell the cat,“ he asks.

Training fees

Even the cost incurred by pilots for their induction training at an airline is unlawful, explains Mr. Shenoy. “Any expenditure incurred on training that is necessary to fulfil the obligations of employment have to be borne by the employer. Pilots can’t be made to pay for this,” he said. Pilots also wonder why they have to pay millions for airline training, given that this is carried out on passenger flights that already earn revenue for airlines. Airline sources said on the condition of anonymity that the fee for induction training is levied because of the cost to the company of removing a pilot from flying duties to conduct simulator training as well as to pay for using simulators.

Sometimes, a dream turns into a bird with a broken wing that can’t fly. After 10 years of training, Saurabh Saxena* lost the ₹40 lakh he paid as an airline training fee to Go First when it collapsed last May. With his family having spent ₹1 crore in all, there was no more financial appetite to nurture the dream and he had to join the family business. “I am getting married on April 23 and I know that I am not an alluring prospective husband,” he said.

Midnight, an all-electric aircraft from company Archer Aviation, is seen at the Salinas Municipal Airport in Salinas, California, U.S. August 2, 2023. File
| Photo Credit: REUTERS

Archer Aviation, backed by Stellantis and Boeing, aims to begin trials of its electric air taxi in India next year, ahead of a planned commercial launch in 2026, the company’s chief executive told Reuters on Friday.

U.S.-based Archer last year partnered with InterGlobe Enterprises, which backs India’s top airline IndiGo, to launch the air taxis to help people avoid ground traffic in congested cities.

“Hopefully for next year, we will be able to bring planes here at the very least from a demonstrations perspective and fly them around. The goal is to help prepare the public for a new form of transportation,” Adam Goldstein, who also founded Archer, said in New Delhi.

Archer is working with India’s aviation watchdog to get the “appropriate regulatory approvals” before it can begin trials in the country, its chief commercial officer Nikhil Goel said, adding it is already conducting trials in California.

For commercial operations, Archer is in final stages of getting approvals from the Federal Aviation Administration (FAA) in the United States, which it expects will come through next year, after which it will seek clearances in India.

It will first launch in New York and India will be its first international market, Mr. Goel said.

Electric vertical takeoff and landing aircraft (eVTOL), also known as flying taxis, have been touted as the future of urban air mobility. The low-altitude aircraft would travel between cities and airports avoiding traffic, but face a number of challenges before they can become a reality.

Archer and InterGlobe will, in a joint venture, own and operate 200 of the ‘Midnight’ aircraft, valued at $1 billion. It will launch services in India’s capital New Delhi, and Mumbai and Bengaluru cities.

The aircraft can carry four passengers and a pilot for up to 100 miles (161 kilometres), and cover in 7 minutes the same distance that would take 60-90 minutes in a car in New Delhi. For a trip costing $12-$18 in a premium rideshare product, a seat in the air taxi will cost $36-$48, Goldstein said.

Archer will begin manufacturing the plane at its factory in Georgia this year and is working with carmaker Stellantis to scale manufacturing globally and possibly in India.

“India will be the biggest market in the world for us. It’s a very important market,” he said.

Air India has been a CFM customer since 2002 when it began operating A320 neo aircraft powered by CFM56-5B engines.
| Photo Credit: The Hindu

Air India and CFM International have finalised the order for LEAP engines for the carrier’s new fleet of 400 narrow-body planes.

The engines will power 210 Airbus A320/A321 neo and 190 Boeing 737 MAX family aircraft.

“Both companies also signed a multi-year services agreement that will cover the airline’s entire fleet of LEAP engines,” CFM said in a release on Thursday.

The order was first announced in February.

Air India has been a CFM customer since 2002 when it began operating A320 neo aircraft powered by CFM56-5B engines.

In 2017, the airline began operating the A320 neo, becoming the first LEAP-1A-powered operator in India. The airline currently has 27 LEAP-1A-powered A320neo family aircraft in its fleet, the release said.

Air India CEO and MD Campbell Wilson said, “We are delighted to celebrate with CFM a major deal that will play a key role in our future development.”

CFM International President and CEO Gaël Méheust said the order strengthens its presence in India.

Earlier this year, Air India placed orders for 470 aircraft, including 70 wide-body ones. CFM International is an equal joint venture between GE Aerospace and Safran Aircraft Engines.