BD airlines in deepest crisis, needs urgent full govt support to survive

_By Raquib Siddiqi16 Sep, 2020 | 1481 Views|-+
Dhaka : The airlines of Bangladesh-one public and three private-are in deepest trouble. Urgent supportive actions from the government a must to save the industry.

Global airline industry is now engulfed in highly volatile unpredictable situation-created by COVID-19 pandemic. A devastating impact that the world in its history has never witnessed. In this unpredictable and abnormal situation, the airline industry of Bangladesh, already structurally weak, is now grasping for breath.

The world airline body, International Air Transport Association (IATA), was forecasting billions of dollars in profit for 2020. It now predicts USD 314 billion in losses for the year and the loss is being revised upwards with each passing day.

IATA predicts that half of the world's airlines will perish from the sky if governments do not come forward with direct financial aid and rescue the airlines. And with that, jobs of millions of pilots, engineers and aviation professionals will go.

With widespread travel restrictions in place all over the world, the majority of passenger airlines had to ground their fleets as there is no or very little operation. In such a situation, airlines all over the world, including major ones, forced to axe thousands and thousands of pilots, cabin crew, engineers and other employees.

According to an IATA estimation, global Airlines is expected to lose USD 314 billion in 2020 in ticket sales alone and to meet this tough challenge, airlines are already implementing various cost cutting measures, which includes (1) Pay cuts of staff members at all levels, (2) Drastic retrenchment of workforce, (3) Effective cost cutting measures, (4) Drop out loss making routes from the existing network, (5) Disposal of under utilised aircraft, and (6) Cut staff benefits, including OT and similar other measures.

In Bangladesh, after remaining idle for months, domestic flights resumed and soon resumption of international flights followed, but with very limited scope because of entry restrictions by different countries, the airlines agonising as to how long the recovery would take.

Rescue by governments

Many governments came forward with financial rescue packages in the form of grants and loans with full comprehension. The US came up with USD 68 billion grant or loans while Emirates received USD 02 billion. Air France received USD 7.6 billion and Lufthansa USD 9.7 billion in state aid. China also declared financial aid for its native airlines. Whether state-owned or private, the governments came up generously to save the airlines.

The behemoth airlines like American, Delta, United, Southwest in the US, Air France, KLM, BA, Norwegian and Austrian in Europe, Emirates, Qatar, Etihad and Qantas in the Asia-Pacific would have been in the graveyard by now without the billions of dollars from their governments.

The International Air Transport Association estimates that USD 1 trillion plus in financial support and bailouts is needed for the industry to get back on its feet.

Bangladesh scene

The airline industry in Bangladesh is now composed four airlines-one public and three private. The operating airlines are: state owned Biman Bangladesh Airlines and three private airlines-Regent Airways, NOVOAIR and US-Bangla Airlines.

It may be noted that, the mortality in the Bangladesh's airline industry is comparatively very high. Since 1993, more airlines have gone out of business and then serving the industry now. These surviving airlines are now under severe vortex of the coronavirus pandemic in the same way, that the airlines all over the world are. The crisis has hit at a time when the backbone of the private airlines was already fragile due to multi-faceted problems-high cost of operation is one of the many. State owned Biman also needs substantial support.

High operating cost

According to some operators, a prohibitive and backbreaking cost element makes the airline industry in Bangladesh untenable and unsustainable.

First, the cost of finance is not just high but prohibitive. The cost involved with setting up and running an airline operation is multi-fold.

When the cost of finance for the aviation industry worldwide is just 1-3 per cent, in Bangladesh one needs to count it in double digits.

Airlines being a highly capital-intensive business with the highest investment and the lowest return, one must be living in a fool's paradise to make a profit in the first place with such a sky-high rate of interest, let alone survive.

Second, the cost of fuel makes an airline's sustainability in Bangladesh very rickety.

Typically, fuel bill accounts for 40 per cent of the total operating cost of an airline. And here in Bangladesh, the fuel cost is one of the highest in the world, particularly for the domestic sector. It is currently 23 per cent (previously 42 per cent).

When there is a price escalation globally, immediately we find a jump in the fuel price. But when the price tanks, it stays at the same higher level. Airlines are simply captive to a single supplier Padma Oil's monopoly.

Third, the expenses on spare is another major driver of cost.

Theoretically, as per taxation rule, spares for aircraft are set at zero where airlines pay anything between 15 per cent and 150 per cent in tax during imports.

Globally, airline spares are costly and adding such exorbitant duty in Bangladesh is another killing factor. Airlines buy thousands of spares to maintain aircraft in airworthy state, mostly on short notices to avoid grounding. The only means of payment for the import of aircraft spares is a letter of credit, which is not accepted worldwide in spares trading.

Fourth, the cost in the form of civil aviation charges (aeronautical and non-aeronautical) is exorbitant.

In Bangladesh, some charges for airlines are 7-10 times more than in neighbouring countries. There are instances when the CAAB hiked fees 1,000 times without any consultation with operators and stakeholders.

With such high cost involved vis-a-vis the very low fare prevailing in the market, one needs to wonder why one dares to venture into the airline business.

Reason of high cost

According to Bangladesh airline industry sources, the reasons for high operating cost of airline operation in Bangladesh compared to others countries including neighbouring India are much high fuel and other civil aviation fees and charges.

It is alleged that the domestic airlines of Bangladesh are to pay BDT 12 per liter more for fuel than the operating foreign carriers.

India has recently increased fuel price several times. Even after that, the price of fuel in India is still cheaper by BDT 09 per liter.

In Bangladesh landing charge for 10,000 kg international flight is BDT 4,436 and for domestic flight of same weight landing charge is minimum BDT 530. In case of higher weight flight, the charge may go up to BDT 3,23,000.

In India in comparison, minimum landing charge for domestic flight is BDT 377.

In addition, airlines are to pay BDT 8,450 to BDT 21,250 per flight for use of boarding bridge, minimum BDT 1,000 to BDT 3,800 for route navigation on international routes and minimum BDT 75 to BDT 3,750 for domestic routes. This charge is higher by nearly double compared to charges in India.

Current crisis

In the backdrop of this pathetic global situation, the fledging airlines in Bangladesh are looking at very gloomy future, while struggling to survive the current crisis.

Situation in all the four airlines of the country - state owned Biman Bangladesh Airlines and private - Regent Airways, NOVOAIR and US-Bangla Airlines - are similar and with closure of most fights, most of the aircraft are now laying grounded.

No income, huge expenditure

Except some rescue flights there is no flight operation for quite sometime. Some flights re-started, but these are very limited in number. Moreover, airlines are not allowed to carry more than 70 per cent on the capacity. As a result, the revenue income of all the airlines nose-dived.

While there is hardly any income, the airlines are carrying the heavy burden of some fixed expenditures, such as civil aviation charges, bank installments, cost of aircraft maintenance, various taxes, overseas offices and salaries of employments are putting huge pressure on all airlines.

To avoid sinking, similar to other countries, all the airlines are expecting "rescue package" by the government.

The struggle

After struggling for almost three decades, private sector airlines of the country-except Regent Airways_ just started to see some lights, when struck by the current situation.

Regent Airways stopped operations at the beginning of the present pandemic crisis. US Bangla and Novo showed resilience till authorities suspended all scheduled air services.

There is no doubt that airlines of the country are providing great services by being one of the major contributors in maintaining connectivity within the country and abroad and contribute significantly in the country's economy and accounts for creating direct and indirect jobs for thousands of people.

So, the domestic airline industry deserves special consideration. Similar to most of the other countries in the world, airline industry should be provided with solid rescue package by the government.

The private airlines are urging following measures by the government to help survive the airline industry: (1) Tax structures for the local airlines in importing their aircraft, spares should be brought down to a greater extent, (2) Landing, parking and navigational charges of CAAB should be reduced by at least 50 per cent, but it would continue to remain same for the foreign airlines, (3) Access to fund for the local airlines should be made much easier. Advise commercial banks to waive their interests on Bank borrowings at least for this disaster period, (4) Reduce fuel supply cost to local airlines, while it may continue same as of now for foreign airlines, (5) Upgrade radar and navigational facilities at Dhaka and Chattogram airports, which would ultimately help Civil Aviation Authority to earn much more revenue, facilitating services to more airlines, as these two airports are considered as convenient gateway between east and west, (6) Pandemic-specific lifeline is a must for the airlines to survive in the first place, (7) Airlines will need a huge sum of money to restart the operation and continue, and the government needs to come forward with liquidity for airlines with a very nominal rate of interest, and (8) The term to repay the loan should be very soft, carry more than five years in tenure with a grace period of at least one year.

Airlines are the umbilical cord of the aviation industry feeding a whole value chain of maintenance, repair and overhaul organisations, aviation training establishments, travel agents, hotel, motels and guest houses.

If the mother ship (airline) kicks the bucket, the rest tied up by the very umbilical cord has the same fait accompli. Unless a holistic discourse is undertaken to salvage the airlines, doomsday lurks ahead for the aviation industry.

Needs govt support to survive

The airline and travel industries in Bangladesh are now grasping for breath. Current situation in Bangladesh, created due to COVID-19, is very bad-no different for rest of the world. Strong government support is the need of the time, to save the industries from sinking. With most of the fleet grounded, airline industry is struggling to find a way-out of the unprecedented crisis. The final toll is impossible to predict now.

Bangladesh aviation market is highly dominated by foreign carriers with 70 per cent market share. The only 30 per cent market share of the domestic airlines is in grave danger, if any other airline goes out of business, stake holders of the industry fear.

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