Plan by National Aviation Co. of India Ltd (Nacil) to launch a low-cost affiliate of cash-strapped Air India, the national flag carrier, to compete on domestic routes with private carriers has been tripped up by regulatory and financial hurdles.

The aviation regulator has refused to approve the launch of the low-cost service under the Air India Express brand on Indian routes because the integration of the four state-owned airlines under Nacil hasn’t been completed yet, said two Air India officials familiar with the development.

Nacil also doesn’t have the funds to complete the makeover of old aircraft into an all-economy configuration, said the officials, who spoke separately and didn’t want to be named because they aren’t authorized to speak with the media.Air India, Indian Airlines, Alliance Air and Air India Express, which flies on some international routes, merged under Nacil in 2007, but they still operate under four different licences and four different firms.

The launch of an all-economy domestic service by Nacil had been expected to reduce airfares and help the state-run airline firm compete better with rivals Jet Airways (India) Ltd and Kingfisher Airlines Ltd that operate low-fare affiliates, besides full-service airlines.

Air India is struggling with losses running up to Rs7,200 crore for fiscal 2009 and debt of Rs16,000 crore. It has sought about Rs5,000 crore in equity and loans from the government in return for cost-cutting measures. The request is to be taken up by a group of ministers meeting on Thursday.

Nacil had been planning to convert old Airbus SAS-made A320 aircraft belonging to Indian Airlines to an all-economy configuration to fly under the Air India Express brand. However, the Directorate General of Civil Aviation has objected to moving the aircraft because the two airlines operate under separate licences, known as air operator’s permit (AOP), said the Air India official cited above.

Air India said the low-cost domestic service would be launched soon. “Air India does have a plan for launching low-cost services under the Air India Express brand. This is part of our turnaround strategy,” said an Air India spokesman in response to emailed queries. “The issue of AOP will be resolved by getting an arrangement in place between AI and AI Express.”

Some of the aircraft have already been configured to an all-economy version, said one of the two Air India officials cited earlier. After regulatory permission wasn’t forthcoming, the word Express that had been painted on the aircraft tail was erased. Some aircraft aren’t airworthy for lack of engine spare parts.“We do not have engine spares as the finance department has not released funds to the vendors, who have stopped supplying spares on credit,” the official said.

A Mumbai-based analyst said this isn’t the right time to start a low-cost carrier and Nacil should first fix Air India’s problems, which include threat of a pilots’ strike from 24 November over pay-related issues.“The whole issue is more to do with cash in hand. There are lots of problems so the main focus is getting things right within the existing structure rather than starting a new venture right now,” said the analyst.

Source:
Air India’s low-cost service yet to take off
Mint
Date- 11 November 2009
Edition- New Delhi
http://www.livemint.com/2009/11/10215001/Air-India8217s-lowcost-ser.html