Vistara's Europe plans likely to get grounded Jet Airways wings

The plan, if fructified, will give a push to the airline's ambitious international plans to long haul routes to Europe and North America

The Tata group has pressed the pedal on its aviation ventures, rushing to fill the void after the recent grounding of Jet Airways. As part of this plan, the group’s full service carrier Vistara is considering acquiring 16 planes of grounded Jet, including 10 Boeing 777 aircraft. 

The airline is also planning to induct at least three single-aisle Boeing 737 planes of Jet Airways. Getting a few Airbus A330, wide-body planes, is also part of Vistara’s plans. The Tata group is likely to formally discuss the fleet acquisition strategy for its aviation business soon. 

The plan, if fructifies, will give a push to the airline’s ambitious international plans to long-haul routes to Europe and North America, while adding to the challenge of operating a diverse fleet. This is a significant change of strategy as Vistara had earlier planned to start international service with short-haul routes (which are in the range of five hours) and gradually foray into medium- and long-haul routes of above eight hours.

As part of its long-haul fleet strategy, Vistara last year had ordered six Boeing 787 Dreamliners, the induction of which will start only from January 2020. 

People in the know said with the grounding of Jet Airways, Vistara wants to advance the launch of flights to Europe as it sees an opportunity in direct non-stop flights between India and Europe.

Besides Jet, Air India is the only other Indian carrier operating direct flights to Europe and North America. 

“When the first tranche wide body order was placed, it was deliberately kept small as there was scarcity of slots and parking bays. Things have changed dramatically with Jet’s fall. With Air India’s perennial financial crisis, Vistara can fill the space of long haul carrier,” a person aware of the development said. 

According to him, Vistara initially tried to advance the delivery of the 787 and was in discussion with Boeing. However, Boeing was unable to accommodate, forcing the airline to look at Jet’s 777, which has 346 seats in a three-class configuration (eight first class, 30 business class and 308 economy class).

Jet Airways has 10 Boeing 777 in its fleet which have been financed by a consortium of foreign lenders and guaranteed by Export and Import Bank of US (EXIM). As Jet defaulted on the loan repayment, EXIM bank was considering to repossess the aircraft. However, Indian banks, in order to increase the collateral, have decided that they will pay off the loan to get control of the aircraft. 

A senior executive of a public sector bank with exposure to Jet Airways said a final decision on this would be taken in a meeting between Indian banks and foreign lenders slated for later this week. 

“Most of the loan has been paid by Jet Airways. Banks will repay the remaining amount of Rs 400 crore to get control of Jet Airways’ aircraft. The value of the aircraft is much higher, thus increasing the collateral of the Indian lenders,” the executive said. Indian banks have an exposure of Rs 11,261 crore to Jet.

Acquiring Jet’s aircraft makes sense as the planes come with trained pilots and crew, thus allowing Vistara to push the planes into service immediately.

“Vistara is also hiring trained pilots and cabin crews from Jet Airways, thus saving the time and cost,” an industry source said. 

However, Vistara’s aggressive expansion strategy can be counter-productive as fuel prices have started rising again. Ameya Joshi founder of aviation blog Network Thoughts wrote that Vistara’s cash burn will be high as it starts operating on international long haul routes. “Cash burn will be similar to how the initial few quarters were, when it tried to build a sustainable brand on a particular route. On international routes, the challenges will be multi-fold, to attract traffic and bookings from the overseas destination and not just India,” Joshi wrote. 

To add to this, there will be complexity of operating a diverse fleet. “The 777 are heavy aircraft with old engines which can push up maintenance cost significantly,” an executive of a rival carrier said.

Vistara has registered losses of over Rs 1,000 crore in three years of operation.