A helicopter service provided by Pawan Hans. (Source: Pawan Hans website)

Selloff Plan Has Left Pawan Hans Struggling To Stay Afloat

Prime Minister Narendra Modi’s government lined up a profitable Pawan Hans Ltd. for sale—about three years later, the state-run helicopter services provider hasn’t found a buyer. And it’s battling a crippling cash crunch.

Things have come to such a pass that the company, 51 percent owned by the government, has run out of cash to pay employees. It’s not in a position to disburse salaries for April due to “uncomfortable financial position in Pawan Hans”, the ANI reported quoting a circular issued by the company to its employees on April 28.

TA Dayasagar, executive director, operations and technical at Pawan Hans, told BloombergQuint over the phone that the management decided to stop paying salaries to cut costs.

Pawan Hans’ troubles come when India’s aviation sector is battling the fallout of Jet Airways (India) Ltd. halting flights. But it’s unlikely to face that fate since the helicopter fleet operator is a Miniratna and owned by the government. Still, the company is emblematic of Modi’s failure in taking state-run companies, including Air India Ltd. and Dredging Corporation of India Ltd., private.

“Pawan Hans was a profitable company and had tremendous amount of focus in its market, especially with ONGC having a stake,” Mark Martin, founder and chief executive officer at Martin Consulting, said. “In no uncertain terms, the government has brought Pawan Hans down to its knees by means of the whole idea of selling it.”

He said Pawan Hans was not supposed to be sold but should have had an initial public offering four years ago based on a strategy defined by SBI Caps. “And that brings us to the question of why sell a profitable company?”

Employees of the company too had opposed privatisation. In a letter to the prime minister last year, they pitched for its merger with Hindustan Aeronautics Ltd., saying that it would strengthen the domestic civil and defence aviation sectors.

How Selloff Plan Led To Troubles

In 2016, the cabinet gave an in-principle approval for strategic disinvestment of state-run firms, including Pawan Hans. The government invited bids in 2017 from domestic and foreign investors to buy its 51 percent stake along with management control in the helicopter services provider. Oil & Natural Gas Corporation Ltd. also planned to sell its 49 percent.

The government received only a single financial bid till the March deadline, the PTI reported quoting an unnamed official. But decided to put the process on hold during the elections.

Some bidders needed more time and the company will into their issues, a senior government official told BloombergQuint. The person, speaking on the condition of anonymity as the information is not public, said the government will go ahead the disinvestment.

But for Pawan Hans, selloff plans amplified problems. That’s because after deciding on the privatisation, the government placed restrictions on purchase of new helicopters, leaving it saddled with an old fleet.

The official quoted earlier said the government doesn’t want to create liabilities for a prospective buyer as that will create uncertainty around divestment. Therefore, according to the official, a huge capex to buy helicopters is not proposed.

Pawan Hans has not expanded fleet since 2015. The number of helicopters fell from 46 helicopters to 42 helicopters in four years through March 2018 after four of its choppers met with accidents.

Of these, 17 are Dauphin helicopters that are more than 31 years and entail high maintenance costs, according to its annual report for 2017-18. Its choppers are on average more than 18 years old.

“The cost of maintaining older aircraft is high though they are air-worthy,” said Dayasagar. “The issue is if the customer wants a newer aircraft, then how will we get it? Customers nowadays demand newer aircraft.”

Higher costs have been eating into its profit. The circular quoted by ANI said the company’s revenue declined sharply in 2018-19 and it reported a loss of Rs 89 crore.

Dayasagar said if you have a company in disinvestment for long, the vendors will be doubtful of relationship as the capex is put on hold. “We may not get the right kind of support from original equipment makers.”

Usha Padhee, chairman and managing director at Pawan Hans and joint secretary, Ministry of Civil Aviation, the company will take helicopters on lease if required. “What we are worried about is our sustainable operations and clientele satisfaction.”

Martin, however, said that an ageing fleet is not a problem for Pawan Hans. “They fly at some of the highest risk regions in the country. Ageing fleet has got nothing to do with the efficiency,” he said. “It depends on the maintenance. Pawan Hans has the best maintenance of helicopters in India, as all capability is in-house.”

According to him, the company is facing a problem of managing its expenditure. “The government is not allowing them to pay for what it needs to pay for. Their aircraft have been grounded because they don’t have money for maintenance. They don’t have helicopters to fly anymore, so how will their income increase.”

High Receivables

Pawan Hans gets 60 percent of its revenue from the government. The recovery period from such clients, particularly states, is long, causing outstanding dues to pile up.

The situation has turned critical as the outstanding amount lying with various customers has risen to alarming levels of over Rs 230 crore, ANI had reported quoting the circular to employees.

Dayasagar, however, said that the receivables stood at Rs 240 crore in 2016-17, and have been brought down to about Rs 100 crore as of year ended March 2019. The company, he said, wants to bring it further down.

The hopes for a successful sale of the state-run carrier are still alive. But the aviation industry is going through a tough phase. “It’s facing the most difficult environment in the world,” Martin said. “Import duties, tax, GST has destroyed businesses.”