A recent report that ModiLuft has decided to take wing once again is heartening. And that Speed Wings, the management consultant wing of British Airways, will be handling ModiLuft's marketing, sales, finances including its management for a set fee is perhaps a precursor to the events that could follow in the fledgling private airlines industry. Six years after the domestic aviation sector was thrown open to private operators, deep-rooted problems still plague the industry.

The capital-intensive nature of the industry, poor financial planning for the long term, overcapacity, uneconomical routing etc have pushed the private airlines industry into some kind of quicksand. The main problem is that when the domestic aviation sector was thrown open to the private sector, many operators were seen scurrying for a big slice in the hitherto unpredictable market with poor planning on the resources front. Also crippling government regulations like the 10 per cent coverage of category 2 routes with a yearly plant load factor (PLF) of 25 per cent does not seem to be practicable. Added to this is the fact that the surcharge on air turbine fuel (ATF) tends to inflate the fuel costs to unmanageable levels. With the Prime Minister hinting at a oil price hike, a substantial increase in ATF seems inevitable.

Also the handful of private operators failed to make the best of a possible oligopolistic situation. They could have easily concurred on an agreement to share overhead costs. Such co-ordination could have at least put a check on the numerous legal tussles on aircraft lease agreements with foreign companies. Legal battles of Skyline NEPC, East West Airlines and others over equipment leasing are still fresh in our minds. Often the Directorate-General of Civil Aviation (DGCA) uses the air travel tax clause to beat the errant private operators with. But what is the solution? Many private operators cite greed and opportunism on the part of foreign lessors for the present turbulence. In fact, many lessors want to break the agreements in India for more lucrative markets in South-East Asia.

A crisis situation has not quite cropped up. yet, it will be worthwhile for the present operators to rethink their strategy. They could induct fuel-efficient fleet, deploy larger capacity planes or even re-route the flights to more lucrative sectors. The recent announcement by Finance Minister P Chidambaram in the Budget debate on the Government's decision to restore Section 10 (15 A) of the Income Tax Act pertaining to the lease rentals of aircraft is indeed welcome.

Had this not been effected, many airlines would have been forced to increase fares, and the heavy burden of tax would have compelled them to cancel lease agreements or forced them to go in for heavy-interest loan structures to maintain their bottomlines. The bail-out moves by ModiLuft may have just begun, but the writing on the wall is clear. Unless the existing handful of operators decide on some contingency measures to avoid a ModiLuft-type of disaster, it will be a lonely and turbulent ride in the skies. Even well-heeled giants like the Tatas had to see the stars from the ground, albeit for political reasons, than fly in the skies. But the private airlines in business should brace up to future competition and prepare themselves for the worst even while hoping for the best.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.