Late last month, the airport operators of the Bengaluru International Airport announced a closure of the sole runway (09-27) starting from March 11, which will result in a suspension of all flight operations during the day, effectively shutting down the whole airport.

The operators, Bengaluru International Airport Ltd. (BIAL), indicated the runway closure was being done to facilitate "runway maintenance work" on the advice of a world leading consultant who "monitor the airfield pavement surface and its performance".


The runway will be shut down in three phases. The first phase will see a full runway closure between 10:30 to 17:30 IST (5:30pm) from March 11, 2012 to April 3, 2012. Phases two and three will see partial runway closures. The shorter runway length will allow for operations of lighter aircraft (turbo-props or flights of shorter distances which will carry less fuel and therefore less weight). Full details are available in the AIP supplement.
AIPS 2012 08 BIA Runway Closure

When The Hindu Business Line reported of a possible full scale runway closure the aviation community in Bangalore was abuzz on the possible reasons. A full scale runway closure is a major event, and for a runway to be closed for "maintenance" implies serious repairs. Serious repairs on a spanking new runway, at a new airport which has commenced operations less than four years ago, clearly implies something extra-ordinary.

A source with extensive knowledge of the Bangalore airport project, expressed extreme surprise on the timing of the repairs, as the runway surface was originally specified to last for at least twelve years.

Another source, also closely involved with the airport project, confirmed the failure, indicating the top layer of the 450mm thick runway has "been determined to be not as structurally strong as should be", calling the failure a "major civil engineering deficiency". This will require the complete top surface to be removed and re-laid. Sources cannot be named as they are not authorised to speak to the media.

The runway was constructured by former BIAL promoter and share-holder Larsen and Toubro, known as India's largest engineering and construction company. In 2005, Larsen and Toubro invested 55.54 crore for a 17% share in the airport project, which it sold in December 2009 for a hefty 1,100% profit to GVK Power and Infrastructure for Rs. 686 crore (Rs. 6.86 billion) and exited.

In its operations, BIAL behaves responsibly, performing runway maintenance with the regular consistency and efficiency of a finely tuned Swiss watch, but all these efforts appear derailed by this failure.

The cracking of the runway surface apparently began in 2010, when the airport was just two years old and in the midst of the eonomic recession which saw domestic traffic levels plunge 20%.

Airport sources inform that BIAL brought in Applied Pavement Technology, Inc. (APTech), a world renowned engineering consulting firm specialising in airport pavement technology, to consult on the prematurely failing runway.

Repeated attempts to repair the runway over the last two years have not been succesful. It is learnt, that the degradation of the runway surface has reached such a serious level, that the effect of the monsoon on the pavement is no longer predictable, thus forcing BIAL to proceed with the maintenance work on a war footing so as to complete the activity before the onset of monsoons in May.

Commenting on this decision, an official spokesperson of BIAL said
Despite many requests, none of the BIAL spokespersons commented on the premature degradation of the runway surface, or its possible causes.

Regardless of the reason(s) for the runway failure, from an innocent oversight to malicious intent, none of them speak well to the reputation of Larsen and Toubro. The stain is even deeper considering the company is supposed to the best in India. In the same coin, while it is also a victim of sorts, BIAL cannot escape blame.

If it is a genuine omisson or mistake, one may even consider forgiving Larsen and Toubro. After all Bangalore was one of the first runways they ever built; but the three private promoters of BIAL were the leading icons in their respective areas of specialisation. As the "trusted custodian of a key national asset" where was this collective skill? Does it not speak to BIAL's oversight and monitoring at the time of construction? Is this a case of poor quality control? or were things taken on a little too much on trust just because the runway construction contractor was also a promoter?

BIAL is an honourable organisation, and Larsen and Toubro could be doing the right thing in repairing the runway at its expense, but the inconvenience to be suffered by the various stake-holders of the airport -- airlines, staff, passengers, concession operators, industries, even taxi drivers, is all too real. The monetary and business impact is going to run in to crores and crores of Rupees with thousands of man-hours lost.

The citizens of Bangalore may not demand compensation, but answers they are.

BIAL should determine and fully disclose the precise reason(s) for the failure, the associated costs, and corrective action reports. If for no other reason, to ensure it does not happen again, and for the reputation of Public-Private-Partnership to be retained.

Once again, we will be beginning our financial analyses for Q3 of FY 2012 with an analysis of India’s largest airline Jet Airways, who posted a modest net loss of Rs. 101.2 Crore, down sharply from a net profit of Rs. 217.9 Crore in the same period last year.

Q3 is typically the best quarter for Indian carriers, so to see Jet Airways posting a net loss is a bit troubling. Moreover, the negative trends continued to emerge from the last quarter, and were even to some extent under-represented due to one-time “special” revenue gains.
Domestic
Despite the drawdown of capacity by Kingfisher, increased capacity from the other low cost carriers in the domestic market (chiefly SpiceJet and IndiGo) ensured that industry capacity grew ahead of demand by about 5% yet again (17% vs.12%). In the long run, this is an unsustainable situation, and should end pretty soon, as 4 of India’s 6 carriers face severe fiscal pressures. These fiscal pressures combined with a weak Indian rupee and a more sluggish domestic economy to drop yields in Rupees by 4.8%, but dollar yields by 19.9%.

Under these parameters, Jet’s performance on the domestic sector was once again quite poor, especially in terms of holding down non-fuel costs. Allowing such costs to appreciate 10.8% helped drive Jet’s break even seat factor up to 86.3%, and the carrier must take steps to alleviate such overruns if it is to succeed in returning to profitability. One of the chief culprits was employee remuneration, which shot up 38.9%, despite just 14.1% growth in capacity. In volatile or even high fuel environments, employee costs are a huge variable which must be properly controlled.

Perhaps in a related move, Jet has joined Kingfisher and Air India amongst others, in deferring payment of January salary to employees. Whether this is the first in a long line of missteps or simply a temporary hiccup remains to be seen, but the fact of the matter is that Kingfisher and Air India both took the same step on their paths to financial ruin.

The 29.9% rise in aircraft lease rentals is indicative of the rising costs of domestic expansion. The company added 4 aircraft (on average) vs. the same quarter last year, and these costs were reflected by the aforementioned number. How much longer can Jet afford to finance domestic expansion for not-so-great returns, and should it consider cutting back, even as it attempts to add 17 more Boeing 737NGs to its fleet growth plan.

Ultimately, the “dirty little secret” is that Jet would have been profitable domestically, if it had limited growth in absolute non-fuel expenditures to the same as capacity growth, or 14.1%. Poor cost control, even more so than yield pressure, drove Jet’s unprofitability within India this quarter.

International
It appears that Jet will once again be the most profitable Indian carrier on its international operations on an EBITDAR basis (though IndiGo likely has higher margins on flights abroad). But Jet has ascended to this position almost by default, given Kingfisher’s tribulations, the mess at Air India, and still limited operations at the low cost carriers.

However, unlike the previous quarter, Jet failed to maintain non-fuel cost discipline, which given the 62.4% rise in absolute fuel costs, was a recipe for disaster causing Jet’s net loss on International operations to actually rise above that of the domestic sector, primarily due to large increase in the cost of depreciation (understandable given that the fleet is beginning to age) and interest. They kept yields in Rupees relatively constant, but the weak rupee all but wiped out those gains.

Jet’s international presence on the long haul now consists primarily of mature (in service for at least two years) markets and we have yet to see the consistent appreciation in yields that typically follows market maturation. Jet plans to add ten aircraft worth of A330 flying in addition to re-integrating the remaining five 777-300ERs into the fleet over the next 2-3 years, and that casts uncertainty on their ability to sustain the 5-6% fare increases required to offset rising fuel costs.

However, as with the domestic side, the unprofitability was ultimately caused by Jet’s inability to get its non fuel costs under control. Here the primary culprit was the undefined “Other Operating Expenses” which rose 32.2% vs. capacity growth of 11.8%. We have contacted Jet's investor relations seek clarity, but despite many follow-ups they refuse to respond.

The domestic side also saw a 48.9% rise in this category. The net sum of all these effects was a pretty handy net loss internationally (the Rs. 20 Crore difference stemmed from depreciation and interest), but a still decent EBITDAR of Rs. 177.6 Crore. Whether Jet can keep its non-fuel costs down will be the primary determinant of their performance moving forward internationally, though continued pull-downs of capacity by Kingfisher would certainly help as well.

General

In combination, the positive revenue effects of the currency fluctuation, the sale of property, and sale and lease back almost combined to mask the true extent of Jet’s financial issues, just as the currency fluctuation overestimated Jet’s true economic losses in the previous quarter. Neither currency fluctuations nor property sales are stable sources of income, but IndiGo has been making profits on the back of sale-leaseback for some time now, and perhaps Jet can translate this into a frequent income source.

For the moment, we are choosing to maintain our positive long term outlook for Jet. By integrating their two low cost brands late in Q4, they should be able to reduce overhead if the merger is done correctly. However, we will be taking a very close look at the Q4 and full year results, which will provide further indication as to whether Jet is slipping into a bad financial cycle.

Late yesterday, embittered Kingfisher Airlines released its quarterly results for Q# of FY 2012.

The struggling carrier saw its net loss deepen to Rs. 444 Crore from Rs. 254 Crore in the same period last year.

Revenues fell 5% to Rs. 1,547 Crore, while expenditures grew 4.8% to Rs. 1778.06 Crore.

EBITDAR was Rs. 125 Crore, down from Rs. 284 Crore.

These figures were achieved on capacity cuts of 5% and passenger decline of 15% to 2.63 million.

Stay tuned for full financial analysis of Kingfisher and other carriers.

Lion Air, Indonesia's largest private airline, has placed on US airframer Boeing, the largest commercial airplane order ever in Boeing's history by both dollar value and total number of airplanes.

The carrier finalised a firm order for 201 737 MAXs and 29 Next-Generation 737-900ERs (extended range), worth $22.4 billion at list prices, which was first announced last November in Indonesia.

The agreement also includes optional purchase rights for an additional 150 airplanes.

The carrier currently operates a fleet of 66 Boeing 737s dominated by 57 Boeing 737-900ERs in an all economy 213 seat configuration.

The 737 MAX is a new engine variant of the venerable Boeing 737NG (Next Generation) i.e. the -700, -800, and the -900ER, developed in response to the Airbus A320neo.

Lion Air will become the launch customer for the 737 MAX 9.

Given our recent shift in focus towards an analytical bent on Indian aviation (most of the guilt lies on my shoulders), there has been a dearth of some of the lighter content here at Bangalore Aviation. I think it also gets lost sometimes, just how much the both of us love flying and love this industry.

Aviation is a mystical, powerful thing, and while the proliferation of low cost carriers has been very bad for the industry's finances, it has allowed more Indians than ever before to experience the magic of flying.

Which is why I decided to pull out this old Air Deccan commercial from earlier this decade; it really shows how aviation in India has become so accessible in less than 20 years.
[ http://www.youtube-nocookie.com/embed/FLGWP_mvDHk?rel=0 ]

Meanwhile, with the end of the line at Kingfisher starting to look more likely, we also thought that now would be a good time to reminisce. Kingfisher came to life selling a different, premium experience to the Indian traveler and for 4-5 years, it did just that. Please enjoy this trip down memory lane with one of Kingfisher's commercials, and be sure to share your memories of either carrier via a comment below.