Finmin rejects sops for private airline M&As

In a note to the finance ministry, the civil aviation ministry had requested that the benefit given to Indian Airlines and Air-India be extended to the entire aviation industry for “a minimum of five years”.

This, it said, would go a long way towards sustaining and consolidating the current growth in the sector. It pointed out that the telecom sector was allowed this benefit early on, which helped it consolidate and grow.

In the services sector, Section 72A benefits are currently available only for mergers and acquisitions between banks, telcos and software companies. Airlines are, however, not allowed to set off losses and unabsorbed depreciation in the case of amalgamation.

According to the civil aviation ministry, the sector’s profitability is under tremendous pressure. For instance, the accumulated losses of Indian Airlines are about Rs 700 crore. Air Deccan’s losses stood at Rs 340 crore for the 15-month period ended June 2006. For the nine-months ending December 2006, Jet Airways posted losses of Rs 52 crore. In the current fiscal, the industry expects losses to top $500 million.

At present, there are 14 scheduled airline operators in the country, including one cargo operator, Blue Dart Aviation. The industry is expected to consolidate through a process of closure or mergers and acquisitions to two or three full-service carriers, three or four large national low-cost carriers (with an operating fleet of over 70 aircraft) and three or four niche or regional operators, according to a study by the Sydney-headquartered Centre for Asia Pacific Aviation.