Will Interups give a fresh lease of life to TruJet?

A Trujet aircraft at the Rajiv Gandhi International Airport in Hyderabad (Image: Anitham Raju Yaragorla via Shutterstock)

A Trujet aircraft at the Rajiv Gandhi International Airport in Hyderabad (Image: Anitham Raju Yaragorla via Shutterstock)

Confusion about the Hyderabad-based regional carrier TruJet and its future remains. First, there was speculation about the airline’s financial health and whether it would be able to survive the COVID-19 impact. Then, in April this year, came the news that Interups, a US-based fund had acquired a 49 percent stake in the airline.

TruJet, promoted by Hyderabad-based Turbo Megha Airways Pvt Ltd, started operations in July 2015.

This week, Laxmi Prasad, Chairman, Interups, said that Interups has tied up with a US- based company, Finexic, for investing in TruJet. Interups, he said, is also in talks with a Saudi Arabian company and a London-based Non-Resident Indian (NRI).

Interups has over 27,500 qualified asset accounts owned by US-based NRIs.

Prasad, however, declined to give details of the talks with the Saudi Arabian company as he is waiting for a confirmation letter from the company.

“Finexic matches dollar for dollar with us at a 7 percent coupon optionally convertible preference shares through a Singapore entity that is owned by one listed Indian company. We are in the process of acquiring this company to hold assets in India and run fund and non-fund based financial verticals,” Prasad said.

What if Saudi company or NRI backs out?

If there is no confirmation from the Saudi company or from the London-based NRI, “we will fund the gap of Rs 315 crore, along with our investing partner FCG. By August 31, we should definitely be completing our first leg of funding,” he said. TruJet needs another Rs 765 crore for year-2 capital infusion.

Prasad would like one to believe that he has the airline’s revival all planned out. He claims that till the first infusion, Interups has sought the previous management’s help to keep supporting the airline, and, in exchange, has issued them a secured promissory note.

“Infusion of Rs 1,575 crore and Rs 765 crore in a year with a wet-lease arrangement from another domestic airline will make TruJet a national carrier, with a support expansion into cargo and medical services to balance airline revenues,” Prasad adds.

Turbulent existence

However, how far Prasad’s plans fructify is a matter of debate. TruJet has had a turbulent existence ever since 2015.

It was among the airlines which were awarded routes in the first round of the UDAN scheme. TruJet’s Hyderabad-Nanded and Hyderabad-Kadapa flights were flagged off by Prime Minister Narendra Modi in January 2018 as the Regional Air Connectivity Scheme got underway.

But this dream run did not last for long. The airline’s fleet was grounded with leasing companies wanting to take back their aircraft earlier this year.

Says Satyendra Pandey, Managing Partner, Airavat Transport & Technology Ventures: “TruJet started with much fanfare but has faced continuous challenges. It has depended on a leased fleet with a majority of the routes on government support via the UDAN scheme. On the distribution front, its inventory listing has seen shorter timelines, which meant that cash flow was impacted even during good times. COVID proved to be a double whammy since traffic volumes are down significantly and the funds crunch has become critical.”

‘India a graveyard for regional airlines’

According to Pandey, there was the welcome news of a new investor in TruJet a few months back, but since then, there has been no clarity on the role of the new investor or a road map by the owners. “Unless there is a clear plan on either fund infusion or growth, there is a question mark on the airline’s solvency,” he says. A regional airline cannot fly below breakeven levels, so there have to be mitigation measures that are planned in advance, he said.

In one sense, TruJet’s problems are a reflection of the problems faced by all regional airlines in India, which lead them to financial trouble again and again.

According to Pandey, India has been a graveyard for regional airlines. “The reasons are many. They include a misreading of the market, lack of comprehensive planning and force-fitting of frameworks. A cursory look at regional airlines reveals that, over the last 10 years, India has seen seven airlines with as many different aircraft types,” Pandey says.

For being successful, regional carriers have to be well-capitalised, well-planned and well executed. “Or in other words: funds, foresight and finishing. You can’t pick and choose between these three,” he argues.

Importance of prime slots

Nripendra Singh, Research Director, Aerospace & Defense Practice, Frost & Sullivan, adds: “Under-capitalisation has always been an issue with regional airlines.” However, he is quick to add that TruJet has good financial stability in the parent group, which is good enough for the airline to survive and flourish.

“This is not the first time that such a financial crisis is happening in TruJet. However, experts will agree that the parent company is financially solvent. You cannot expect bankruptcy of the airline or expect it to go in for consolidation,” he says.

Highlighting the other problems faced by regional carriers in India, Singh says smaller aircraft are exempt from landing fees and lower fuel tax as per DGCA guidelines to support regional air connectivity. The government has exempted smaller aircraft from paying landing and parking fees at airports.

“The ripple effect of these exemptions is that airports are a bit reluctant to give peak slots to regional airlines. You cannot expect regional connectivity to develop without touching Tier I and Tier II cities,” Singh adds, pointing out that the regional airlines operate on margins thinner than those of established players.

“To ensure profitability, regional airlines have to make sure that they have good passenger loads (about over 65 to 70 percent), which generate enough revenue for them and keep their operations afloat. But for that to happen, you need prime slots. Suppose business travellers cannot make a day’s return trip on a regional airline. In that case, they are likely not to fly, thereby making the airline lose a crucial passenger segment of corporate travellers,” he says.