Lufthansa-Modiluft split shows India's aviation warts<\/p>\n
By Sonali Verma<\/p>\n
NEW DELHI (Reuter): The split between Germany's Lufthansa AG
\nand its Indian partner Modiluft highlights the problems affecting
\nIndia's fledgling private aviation industry, industry analysts
\nsaid on Thursday.<\/p>\n
"India has the world's highest fuel prices and the lowest
\ndomestic fares. It's really a bad combination," said aviation
\nanalyst Brij Bhardwaj.<\/p>\n
"Most Indian companies have run into problems with their
\npayments schedule for leased aircraft because the financial
\nsituation of airlines is not good. So, most companies are
\ndefaulting," he told Reuters.<\/p>\n
Lufthansa on Wednesday said it was ending a three-year-old
\nalliance with Modiluft because Modiluft had defaulted on payments
\ndespite warnings and negotiations, forcing the German firm to
\nincur losses running into millions of marks.<\/p>\n
The agreements terminated included a leasing agreement for
\nthree Boeing 737-200 aircraft, which Lufthansa said it would
\nattempt to repossess as soon as possible.<\/p>\n
Modiluft chairman Satish Kumar Modi on Thursday denied he had
\nfailed to make payments under the two airlines' 1993 technical
\ncooperation agreement.<\/p>\n
"I am stating very, very clearly that I am in breach of no
\ncontract," Modi told a news conference. "Modiluft, as far as the
\nlaw is concerned, is on a very strong wicket. We have paid the
\nmoney. Nothing is due from us."<\/p>\n
India dismantled a state aviation monopoly as part of a series
\nof radical economic reforms in 1991, opening its air travel
\nsector to more than a dozen private airlines.<\/p>\n
But analysts say most airways -- weighed down by crippling
\nfuel and maintenance costs, low passenger fares and occupancy
\nrates, and government laws that force them to fly to remote,
\nunprofitable regions -- are foundering.<\/p>\n
"Every single private Indian airline has problems," said a
\nsenior European airline official in Delhi.<\/p>\n
"To run an airline is not so simple. Everything must be
\nimported from abroad. We're talking of every little spare part
\nhere. Then fuel prices are a big dent on the finances. Most of
\nthese companies have very limited resources."<\/p>\n
Lufthansa's Indian alliance, operational within three months
\nof the ink drying on the agreement, was one of the most promising
\nnew aviation ventures when reforms began.<\/p>\n
But analysts say signs of a souring relationship soon emerged,
\nas Lufthansa posted executives to India, then quickly withdrew
\nthem and declined to take an equity share in Modiluft.<\/p>\n
Modiluft is currently India's second largest privately owned
\nairline, with a fleet of seven leased aircraft that fly 38
\ndomestic flights daily.<\/p>\n
Modi said he expected the company's net profit in the 1995\/96
\nfinancial year ending on May 31 to surge to at least 250 million
\nrupees, more than four times the 1994\/95 net profit of 56.8
\nmillion rupees.<\/p>\n
Turnover was expected almost to double to at least three
\nbillion rupees from 1.5 billion in 1994\/95, he said.<\/p>\n
Bhardwaj, who is associated with aircraft makers Boeing and
\nLockheed Martin Corp's consultants in India, said most airways
\nwould cave in under the pressure of payments for leased aircraft.<\/p>\n
"There is no quick money in airlines," he said. "The cash
\nflows involved are very large and the profits are very low. You
\nneed a 70 to 80 percent occupancy rate to break even. That does
\nnot happen."<\/p>",
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