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Risk Factors for Akasa Air May Mar its Prospects
risk factors for Akasa Air.

Though there was almost no significant activity during January-July 2021 in the Indian aviation sector, it suddenly sprung into action a few weeks ago. Nowadays every aviation or non-aviation news space is dominated by the risk factors for Akasa Air from its concept to its commissioning. Thanks mainly to a bold decision taken by the billionaire investor Rakesh Jhunjhunwala. The civil aviation sector in India now sees a refreshing wave of hope in Akasa.

One may call it an alignment of some star-based astrology, but there are lots of things going for a brand new airline within the making that would possibly have attracted the eye of everyone involved in this day and age.

Akasa is a start-up ultra-low-cost carrier. Jhunjhunwala, popularly called the Warren Buffett of India, is one individual who has been dictating stock markets’ movements for the past two decades or so. He has publicly stated that Akasa would operate 70 aircraft by 2025 and he might invest to the tune of USD35 million for a 40% stake in an ultra-low-cost airline start-up, called Akasa.

Had Jhunjhunwala invested USD 35 million in stocks, he would have easily made USD 36 million within one hour. But Sir Richard Branson will point out that the aviation business will easily convert a billionaire to a millionaire.

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The media has already reported that Akasa has obtained a No Objection Certificate from India’s Ministry of Civil Aviation with its base at Bengaluru. The NOC is just one step forward to obtain Air Operating Permit (AOP).

While India’s civil aviation has been a very uphill market to operate, very few have made money here. Apparently, Team Jhunjhunwala saw three big opportunities while arriving at this decision.

ONE. The world’s biggest plane maker, Boeing (BOE, Chicago O’Hare), desperately seeks buyers for its B737 MAX aircraft — its most popular model. Boeing, looking for a stronger foothold in India, sees a chance in India where most of the airline operators do not operate the 737 MAX. They use Airbus aircraft. Airbus will not be in a position to deliver new planes for at least the next ten years, but Boeing can deliver its B737 Max well within the next 6-7 months. Priced at USD 100 million, the controversial aeroplane is reportedly being offered at almost a 50% discount. Although discounts are normal in large aeroplane deals, Boeing seems willing to extend more steep discounts on this particular deal with Akasa. 70 737 Max aircraft would be valued at nearly $8.5 billion.

The aircraft has been grounded in many countries, including India, after two fatal mishaps in Indonesia and Ethiopia in 2018 and 2019. Boeing did its first test flight after nearly two years to recertify the B737 MAX in China a few days ago. In July, India’s aviation regulator, the Directorate General of Civil Aviation (DGCA), permitted Boeing to fly the B737 MAX through the Indian airspace but not to land. Till that time, the DGCA seemed not convinced about the aircraft type’s safety.

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Boeing has some basic groundwork to do given India does no longer have any 737 MAX operators except SpiceJet as of now. Since India now has a 737 MAX simulator, this additionally signifies that pilots need not be flown out of the country for the requisite training anymore. India additionally has a pool of pilots from other airlines like Air India Express and SpiceJet, both 737 operators, who are also readily available to move. The financial situation of a few the Indian airways could possibly influence the move to a new airline as neatly.

Boeing and Rakesh Jhunjhunwala have approached the Indian government to recertify the B737 MAX. It seems significant progress has been made in their discussions with the regulators. Only when the government recertifies the aircraft, Akasa will be able to take off.

TWO. The market potential. Despite the covid induced setbacks, India remains one of the biggest aviation markets in the world. It has already shown several indications of recovery. India has bounced again, as more users of the railways switch over to flights at a fast clip.

THREE. The available Human resource may not be any of the risk factors for Akasa Air.

Industry VeteransEarlierNow in Akasa Air as
Vinay DubeJet Airways CEOChief Executive
Belson CoutinhoJet AirwaysHead Marketing
Bhavin Joshi Jet AirwaysSenior VP for finance and leasing
Neelu KhatriJet AirwaysHead government affairs
Adam VossJet AirwaysHead Engineering,
Ajit BaghchandaniJet AirwaysHead inflight services
Floyd Gracious Jet AirwaysHead flight operations.
Aditya Ghosh Ex-IndiGo PresidentBoard member
Praveen IyerJet Airways and GoAir exec Chief Commercial officer
Anand Srinivasan GoAir revenue management Chief Information Officer.

Alumni from other airlines may join Akasa Air

Merits and Demerits of ULCC Model

Not many people support the choice of the ULCC fashion. ULCC airways piece apart each service and sell them one by one. AirAsia tried to sell everything piecemeal, together with luggage after they launched but was asked to maintain decorum with the Indian marketplace by the DGCA, where airlines supply at least 15 kilos as free check-in baggage. This issue may well be one of the risk factors for Akasa Air.

Also, in India, the LCC type has no longer been a good fortune, given the price of operation of airways at the airport is the same for all airways, be it no-frills or full-service. So it is still noticed as to how Akasa will be able to differentiate itself in a crowded marketplace.

Also Read: IndiGo flight out of the crisis: a revival story in Covid times

But the aviation sector does hope that Rakesh Jhunjhunwala emerges triumphant once again as he has extended his Midas touch and been a successful investor in the past. In any case, lower ticket costs will without a doubt mean extra other folks take to flying, although the legroom is one thing folks will cry about.

Areas Where Team Asaka Needs to be Watchful

In present times, there remains a tendency for the management to get carried away after having a feel of Boeing’s offers and the market’s bullish sentiments. It takes just one major incident like a bird hit that can wipe out all profits made in one month. Metro airports like Delhi and Mumbai are not only crowded, but they charge abnormally high from the operators for using their properties. High parking charges often make a start-up project unfeasible. A wise move will be to choose a non-descript airport like Darbhanga either as the base or as a major operating hub. While it is true that Darbhanga and Delhi are beyond compare, the former certainly has an edge that not even Bengaluru has. With bare minimum facilities, the airport at Darbhanga has performed exceptionally well since its inauguration. It connects six other airports, has 61 departures in a week with 14 flights in a week to Bengaluru being the busiest route. All airlines are willing to operate more flights from here but the admin has been unable to keep pace with the growth.

It is only a matter of time for a country-side underutilised airport in India to have the basic communication, navigation, engineering and ground support facilities and make it Delhi like. The Jhunjhunwalas may like to consider investing a fraction of the proposed USD 35 million in this area. Among other new airports, Darbhanga enjoys a unique advantage because of its close proximity to other airports in Nepal.

Thus the promoters must be prepared to cover all the risk factors for Akasa Air.

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By Naleen Chandra

Naleen Chandra, founder of NC Airways based at Patna in Bihar. The author and coauthor of several blog posts. He has worked for more than 20 years in Aviation as an Aircraft maintenance engineer at senior management. He is a keen observer of socio-economic conditions which affect every aspect of the common man's life. He is a corporate director and investment banker-turned political commentator. Views expressed here are, of course, personal.

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