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