HAL shares see 83% rally in the year as buyers' interest in its defence aircraft rises

Shares of Hindustan Aeronautics Limited (HAL) surged over 5% on Thursday, August 11 ahead of the company reporting its fiscal year earnings report for the April-June quarter on Friday, August 12.

?1 lakh invested in HAL at the beginning of 2022 is now worth ?1.75 lakh. 

HAL is one of the world’s largest and oldest defence manufacturing companies, and its investors have gotten very rich this year. HAL’s rise could also benefit two other defence manufacturers, say analysts. The company’s large order book and interest in the Tejas LCA by six countries have driven the rally in its stock.

Defence indigenization has been one of the goals of the current Indian government, to reduce dependence on foreign countries. But a crucial aspect that gets relatively less airtime is defence exports – and it has made investors of Hindustan Aeronautics richer by 75% in 2022 alone. 

HAL is in talks with Egypt, Malaysia and Nigeria for defence exports that could amount to over $5.5 billion, with tenders for setting up manufacturing facilities for the Tejas Mk1A light combat aircraft, helicopters and maintenance of Malaysia’s Sukhoi fighter jets, among others. 

The company has achieved excellent performance in terms of turnover. 

The Indian government’s focus on increasing defence indigenization has also helped HAL in securing economies of scale, making its export offers more competitive. This, coupled with the high technical ratings of Tejas, has made it a key contender for bagging contracts from Egypt and Malaysia. 

According to the company’s latest financials, HAL’s current order book stands at ?82,000 crore – this is 3.3-times the company’s FY22 revenue. Further, it has a strong pipeline of ?1.24 lakh crore of manufacturing orders over the next three to four years, which will help the company deliver double-digit revenue growth, according to a report by ICICI Direct Research. 

Once rejected by the Indian Navy as “too heavy”, Tejas has been one of the success stories of India’s defence indigenization efforts. And now, according to the government, six countries are interested in HAL’s light combat aircraft. 

Shares of HAL were trading at 2,273 rupees, 5.03% higher than the previous close on BSE.

The Indian government said that the US, Australia and Indonesia have also expressed interest in the Tejas. HAL has already offered the twin-seater variant of the Tejas LCA to Malaysia in a deal worth $1.5 billion, in addition to maintenance of the Russian-origin Sukhoi 30 fighter jets.  

The company's last financial year earnings report notified that the current order book stands at Rs 82,000 crore. The defence company also expects to clock 6-7% revenue growth for FY23.

A Singapore court has dismissed Bharat Forge's case against Bombardier, two years after the Indian auto component giant dragged the Canadian plane maker to court over alleged faulty parts in an aircraft. Bharat Forge's claims were "hopeless, both factually and logically," said Judge Andre Maniam.

Bharat Forge's jet, a long-range Bombardier Global Express XRS, was given for a major maintenance shop visit to Bombardier Aviation Services (BASS) and was sent over to the facility of BASS, located at Seletar Airport in 2020. 

Judge Maniam additionally directed Bharat Forge to pay $10,000 to Bombardier. 

Indian auto component maker Bharat Forge has taken Canadian aircraft and train maker Bombardier’s Singapore unit to court over what it alleged as serious technical glitches in a retrofitted component in its business jet. 

The Singapore court docket judgment nevertheless stated Bharat Forge bought any such guarantee from Bombardier.

“Indeed, Bharat Forge expected the aircraft to be perfect (or “virtually to perfection”), but it did not pay for it. Instead, it contracted for BASS to perform a specified scope of work, on agreed terms and conditions. In so doing, Bharat Forge worked hard to negotiate and bring down the inspection cost,” stated Maniam within the judgement.

Bharat Forge's claims were "hopeless, both factually and logically," said Judge Andre Maniam. 

“At trial, Bharat Forge’s case fell apart – there was hardly anything keeping it together, to begin with. Undeterred, Bharat Forge persisted with its claims through closing submissions and reply closing submissions, in which it essentially ignored what had happened at trial, falling back on assertions in AEICs that had been recanted, or that were without merit,” stated the judgement.

AirAsia India and Vistara’s losses widened in the financial year ended March 31, 2022 (FY22) on a year-on-year (YoY) basis due to the impact of the Covid-19 pandemic and an increase in operating costs, according to Tata Sons' FY22 annual report.

While aviation turbine fuel prices jumped around 67% and the rupee weakened by 0.4% against the dollar in FY22 over FY21, passenger demand too was impacted by two waves of the pandemic. This had a toll on the airline’s financial results.

AirAsia India’s loss grew 42% on a YoY basis to INR 2,178 crore, while its revenue rose nearly 39% to INR 1,887 crore. The airline had a negative reserve and a surplus of INR 4,849 crore.

AirAsia India’s loss grew 42% on a YoY basis to INR 2,178 crore, while its revenue rose nearly 39% to INR 1,887 crore.

Vistara’s loss rose by 35% on a YoY basis to INR 2,031 crore while its revenue jumped 2.3 times to INR 5,226 crore in FY22. It reported a negative reserve and a surplus of INR 8,120 crore at the end of March 2022.

AirAsia India has been shrinking its operations and operates only 27 aircraft. It returned seven Airbus A320 planes to AirAsia Berhad in Malaysia in FY21.

ALSO READ - Vistara leases B787 Dreamliner to increase international flights operations

Vistara’s loss rose by 35% on a YoY basis to INR 2,031 crore while its revenue jumped 2.3 times to INR 5,226 crore in FY22.

On the other hand, Vistara has been gradually building up its fleet and network. Vistara launched operations in Europe deploying its wide-body Boeing 787 aircraft and also operated charter flights resulting in revenue growth. It currently has 53 aircraft and its fleet will go up to 70 by end of the calendar year 2023.

ALSO READ - Vistara may merge with Air India, a decision expected by end of 2023

“The first half of FY22 was significantly impacted by the second wave of Covid-19, whereas the second half enabled demand recovery, although high fuel prices continued to be a challenge. We also spent a large part of 2021 densifying our domestic network, expanding our international footprint and investing in expanding our fleet."Vistara

Fleet and network expansion has been a big part of Vistara’s strategy, with the carrier aiming to have 70 aircraft by March next year. Rumours about its merger with Air India have been circling for a while now, but so far, both airlines seem to be heading on their trajectory.

ALSO READ - Air India gets CCI’s approval to acquire the entire stake in AirAsia India

AirAsia India is waiting to come under 100% ownership of the Tatas as a case against some of the carrier’s top executives are acting as a roadblock to its international expansion plans.

ALSO READ - Tata Sons working on a merger between AirAsia India and Air India Express

Like Vistara, AirAsia India, too, has been facing questions about a possible union with the budget carrier Air India Express, but the owners will have a lot to consider before bringing it together with a profitable enterprise like Air India Express.

Jet Airways on August 11 reported a standalone net loss of INR 390.1 crore for the three months ended June (Q1FY23) which was more than twice the amount it had reported in the year-ago period. The full-service carrier had reported a loss of INR 129 crore in the April-June quarter of 2021.

The defunct carrier's revenue from operations declined 83% to INR 12.53 crore for the quarter under review, the airline said in a regulatory filing to the BSE.

The airline's total income stood at INR 13.10 crore in the June quarter compared to INR 75.01 crore in the year-ago period. Net Sales at INR 12.53 crore in June 2022 down 83.03% from INR 73.83 crore in June 2021. EBITDA stands negative at INR 347.15 crore in June 2022 down 326.79% from INR 81.34 crore.

Jet Airways reports a net loss of INR 390.1 crore in Q1 FY23

Jet Airways shares closed at 103.85 on August 11, 2022 (NSE) and have given 21.68% returns over the last 6 months and 35.31% over the last 12 months.

ALSO READ - Jet Airways nearing a deal to buy 50 A220 jets from Airbus

The airline -- which received an air operator certificate from aviation regulator DGCA on May 20 -- is yet to place an order for aircraft with either European planemaker Airbus or American aerospace company Boeing. Currently, the airline has just one operational aircraft -- which is a B737NG -- in its fleet.

ALSO READ - Jet Airways to lease 6-8 aircraft by December; in talks with aircraft manufacturers and lessors

The airline's total income stood at INR 13.10 crore in the June quarter compared to INR 75.01 crore in the year-ago period.

Financial distress forced Jet Airways, which flew for more than two decades, to suspend operations on April 17, 2019, and a consortium of lenders, led by the State Bank of India (SBI), filed an insolvency petition in June 2019 to recover outstanding dues worth over INR 8,000 crore.

ALSO READ - Jet Airways returning with a hybrid premium and no-frills model, first flight likely by October 2022

Jet Airways India Ltd., which is undergoing a court-monitored restructuring, plans to return with a hybrid of premium and no-frills services that would allow the former top local airline to claw back market share while managing costs in the fiercely competitive Indian aviation market.

The Jalan-Kalrock Consortium is currently the promoter of Jet Airways.

Jet Airways, in its previous stint, was owned by Naresh Goyal. The Jalan-Kalrock Consortium is currently the promoter of Jet Airways.

The consortium infused INR 500 million into Jet Airways 2.0 — as it is dubbed by the new owners — in January, and lenders have said they don’t object to an extension of 60 days.

In October 2020, the airline's Committee of Creditors (CoC) approved the resolution plan submitted by the consortium of the UK's Kalrock Capital and the UAE-based entrepreneur Murari Lal Jalan. In June 2021, the resolution plan was approved by the National Company Law Tribunal.

Revenue of Air India rose 64% in fiscal 2022, but its net loss swelled by a third, showing the latest regulatory filings by the airline that Tata Sons bought from the government earlier this year.

The airline posted net revenue of INR 19,815.9 crore during the year to March 31, 2022, on a standalone basis, with a net loss of INR 9,556.5 crore. In FY21, it reported a net loss of INR 7,017.4 crore on revenue of INR 12,104 crore.

But changes are underway. Air India improved its load factor to 73.5% and saw an 80% improvement in the number of passengers carried to over 1 crore.

Air India’s revenue rose 64% in FY22; net loss swelled by a third

The company, which was taken over by the Tata Group in January, said it introduced various measures in fiscal 2022 to minimise the financial impact arising in these difficult times, and partially mitigate the impact of the pandemic.

These steps include salary/allowance cuts across the board, suspension of all post-retirement contractual engagements, the introduction of the concept of a shorter working week and encouraging employees to use its leave without pay scheme.

“The group also engaged its aircraft lessors in negotiations to secure cuts in lease payments, exercised strict control over vendor payments to ensure best possible use of funds,” it stated in filings with the Registrar of Companies sourced by AltInfo.

Air India improved its load factor to 73.5% and saw an 80% improvement in the number of passengers carried to over 1 crore.

There is a gradual improvement in operations, especially on international routes, with a warning of the impact of Covid worldwide and removal of movement restrictions across the country, Air India said.

However, the company said, salary and allowance cuts were being slowly withdrawn and the group hoped for a reinstatement of pre-Covid operations level in the coming future.

Air India’s new chief executive, Campbell Wilson, who took charge on June 16 with a mandate to transform the airline, is creating a new, operational structure, fixing systems and processes to ensure on-ground efficiencies besides keeping close tabs on daily losses.

There is a gradual improvement in operations, especially on international routes, with a warning of the impact of Covid worldwide and the removal of movement restrictions across the country

ALSO READ - Modernization of Air India to start soon by Tata Technologies

Wilson has been tasked with creating a customer-centric and service-oriented culture. The Tata Group has already invested INR 15,000 crore in building talent, training, deployment of IT systems and creating a modern fleet aside from improving ground handling through data analytics.

ALSO READ - Air India to get enhanced passenger service system from Amadeus

A voluntary retirement scheme has also been offered to employees and key new hires are in progress to re-energise the airline.

ALSO READ - Key to TATA’s strategy to infuse fresh energy into Air India

A voluntary retirement scheme has also been offered to employees and key new hires are in progress to re-energise the airline.

India’s domestic air passenger traffic grew nearly 67% during the January-June period of this year, according to air traffic data released by the Directorate General of Civil Aviation.

“The aggregate market share of Tata Group-backed airlines (Air India, Vistara and AirAsia India) stands at 20.6% as of May 22,” said a JM Financial report.

“The recent acquisition of Air Asia by Air India is likely to provide greater synergies and improve competitiveness going forward. Competitive intensity in the airlines' sector is expected to intensify with the addition of Akasa Air and Jet Airways,” it added.

(With Inputs from The Economic Times)

The Directorate General of Civil Aviation has decided to remove the ongoing fare caps on the tickets of domestic airlines from August 31.

"After review of the current status of Scheduled Domestic Operations viz-a-viz passenger demand for air travel in terms of the purpose specified in the initial Order No. 02/2020 dated 21.05.2020, it has been decided to remove the fare bands notified from time to time regarding airfares with effect from 31.08.2022," the DGCA said in a notification.

The airlines and airport operators must, however, ensure that the guidelines to contain the spread of COVID-19 are strictly adhered to and COVID-appropriate behaviour is strictly enforced by them during travel, it added.

https://twitter.com/MoCA_GoI/status/1557309848617754630

The government had in June started discussions with airlines about removing price bands for passenger fares. The talks started after some airlines renewed their demand to remove the pricing caps, claiming the regulation is a hurdle to the full-fledged recovery in domestic air traffic.

In May, aviation minister Jyotiraditya Scindia said that fare capping was necessary to protect passengers from exorbitant fares.

ALSO READ - Government to begin discussions on stripping the airfare price caps soon

"I have an environment where ATF prices are still very high, I want to protect the passengers and also the airlines... I have to ensure that the environment is stable and I need multiple airlines to proliferate in my country and then I need to create that arena where multiple airlines can operate,” Scindia had said.

In May, aviation minister Jyotiraditya Scindia said that fare capping was necessary to protect passengers from exorbitant fares.

Discussions on removing the price bands for domestic airfares have resurfaced after many airlines renewed their demand to remove the pricing caps, saying that over-regulation is a hurdle to the full-fledged recovery of domestic air traffic. Airlines in India are also hoping that ATF will be brought under the goods and services tax regime, to lower their burden.

ALSO READ - Vistara CEO on B787 aircraft leasing, airfare hike and fare caps at IATA AGM

Vistara CEO Vinod Kannan had on June 19 said that he would be happy if the lower and upper limits on airfares were increased but the best solution would be for the airlines to have absolute freedom on airfares.

Fare caps are currently applicable on a rolling basis for a 15-day cycle, which means airlines are free to set prices of tickets beyond 15 days from the date of booking.

It has become difficult for airlines to maintain operating efficiencies under the current fare caps, given that ATF accounts for 30-35% of operational costs.

For example, airlines currently cannot charge a passenger less than INR 2,900 (excluding GST) and more than INR 8,800 (excluding GST) for domestic flights of less than 40 minutes.

Experts said it has become difficult for airlines to maintain operating efficiencies under the current fare caps, given that ATF accounts for 30-35% of operational costs.

Jet fuel prices have been coming down during the last few weeks after jumping to record levels, primarily due to the Russia-Ukraine war that began on 24 February.

The Aviation Ministry had imposed lower and upper limits on domestic airfares based on flight duration when services resumed on May 25, 2020, after a two-month lockdown due to the pandemic.

Airlines in India are also hoping that ATF will be brought under the goods and services tax regime, to lower their burden.

The lower end of the fare band was put in place to help airlines that had been struggling financially due to travel restrictions. The upper limit was imposed so that passengers are not charged huge amounts when the demand for seats is high.

The decision comes when the summer travel season has ended and the travel industry has entered a lean season.

Airlines have also seen a drop in passenger demand as compared to the levels seen between April and June because of the seasonality in demand as well as steep airfares due to high aviation turbine fuel and oil prices. During such a time, airlines say they like to attract passengers with lower airfares to fill their aircraft but were constrained by the airfare bands.