Make regional airlines a viable business case instead of giving them just cheaper loans…

The easiest solution to start or address woes of an industry is to make loans/debt cheaper.

So, it is hardly a news that in order to kickstart regional airline scheme, govt is thinking of providing cheaper loans:

The government is exploring ways to assist regional airlines in raising loans at cheaper interest rates to import aircraft as a part of the regional connectivity scheme.  The civil aviation ministry held a meeting with non-scheduled airlines in which concerns related to the regional connectivity scheme were raised by the operators. “We feel the non-scheduled operators are the most prospective players who will come immediately to become a part of our scheme. Their response in the meeting was encouraging but they had certain concerns which we aim to address,” said a senior civil aviation ministry official.

The official said that the present procedure of leasing aircraft becomes tedious for airlines and ministry is looking forward to resolving this. Under the current norms, an aircraft cannot be mortgaged for raising loans to lease another aircraft. The official said it may propose to the Union finance ministry to allow financial institutions to give loans against aircraft mortgage.

“We raised the issue related to raising capital and lowering interest rate for acquiring aircraft. There is a need for finance to be made available to us at a lower interest rate and financial institutions should come forward,” said Bhupesh Joshi, governing board member of Business Aircraft Operators Association.

“On more than half of the 400-odd airstrips, only a nine-seater or a 20-seater plane can operate due to the runway length. The required paid-up capital for start-up companies to bring in two nine-seater aircraft is Rs.2 crore which is huge,” said Air Odisha founder and its director operation Santosh Pani.

The official said the government will facilitate players to also become a part of the regional connectivity scheme (RCS) while continuing to do their charter operations. “They may continue to operate charter services and in their vacant slots, do RCS flights,” the official said.

Mr. Pani said the operators also requested the government to increase the viability gap funding by 20-30 per cent. “At the present proposed rates, break-even is not possible,” Mr. Pani added. Centre had announced the draft RCS on July 1 which seeks to revive torpid airports and increase air connectivity in towns and cities by making flying cheaper. The government has proposed providing the subsidy to the operators flying under the scheme in a bid to ensure fares are capped at Rs.2,500 for an hour’s flight.

The subsidy amount to the airlines will be in the range of Rs.1,810-Rs.4,170 depending on the air distance travelled from 200 km-800 km, as per the draft policy.

A similar subsidy for poor/consumers will obviously be flagged against.

I mean easier loans without a business case have never worked and will not even work in this case. Regional airlines is hardly a new idea and we had similat attempts in the past as well. But all that led to bad losses for the banks and the investors.

Regional airlines can only emerge when the entire economic system is thought through. We have plenty of issues to be addressed. Easy Loans should be the least of the priorities…

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