Yet again, the southern region of India continues to play a vital role in regional aviation. One more player has shown keen interest in joining the bandwagon of regional airlines. Promoters of Karnataka’s VRL Group, Dr Vijay Sankeshwar, former Member of Parliament from BJP, and his son Anand Sankeshwar are planning to foray into regional aviation, given the new civil aviation policy which promotes regional and remote area connectivity.

Subsequent to his announcement in May 2016, the government has unveiled the National Civil Aviation Policy which is expected to give fillip to the aviation sector in general and regional aviation in particular. The regional connectivity scheme (RCS) is to come into effect in the second quarter of 2016-17 and key feature is that there will be a cap on airfare at Rs. 2,500 for a one-hour flight.

The benefit for the operators are there will be no airport charges; reduced service tax on tickets (on 10 per cent of the taxable value) for one year initially; reduced excise duty at two per cent on ATF picked at RCS airports; state government will provide police and fire services free of cost and power, water and other utilities at concessional rates etc.

With the government’s proactive approach and general aviation climate in India, the Sankeshwars started scanning the sector and found that regional airlines was a good bet.

In a press release and clarification to the Bombay Stock Exchange, Dr Vijay Sankeshwar said that “the opportunities in regional airlines that I see are phenomenal and I am personally excited to be part of the fastest growing aviation market in the world. My principles of cost focus and high utilisation has made us a leader in domestic transport, which I think are key attributes to succeed in the aviation sector as well,” he said adding that the proposed venture was still at a very early stage.

Rs. 1,400-Crore Investment

He said that preliminary estimates suggested a total investment in the airline business of about Rs. 1,400 crore over three to four years of which his equity would be Rs. 400 crore and further Rs. 1,000 crore will be debt to fund the regional airline business. The proposed airline business when set up would be run by professionals with strong sector experience and “I will primarily play the role of a financial sponsor”, he clarified to the Bombay Stock Exchange as media reports said VRL Logistics would be venturing into airline business.

Following media reports, VRL Logistics shares crashed 20 per cent. “I wish to clarify that the proposed entry into airline business is a personal investment and at no point do we anticipate VRL’s balance sheet being used for the venture. We remain the largest shareholders of VRL with a 69 per cent stake in the company today and do not anticipate our stake to significantly decrease in the company. VRL Logistics will continue to be the primary focus and interest of promoters and I will continue to be in full charge of the day to day operations.”

VRL Logistics is into passenger and goods transportation business. It is also a parcel delivery service provider and has interests in wind power generation and air charter operations.

The group is internally deliberating on the mode of financing its entry into civil aviation. “We may seek to dilute a portion of our present-day holding in VRL Logistics in order to provide us with liquidity to enable our investment for the aviation venture,” the promoters told the stock exchanges. “Subsequent to the same, we will continue to hold a majority stake in the company.” Sunil Nalavadi, Chief Financial Officer of VRL Logistics, clarified that the promoters’ plan to enter civil aviation has no connection with the logistics company. “This is purely a venture by promoters. Promoters many dilute up to two per cent stake of the company to start the regional airline,” Nalavadi said.

To be sure, promoters of VRL Logistics said that the commencement of such regional airline service is subject to a number of approvals from governmental and regulatory authorities and promoters’ intent to the board should not be considered as an eventual certainty of regional airline venture.

VRL in Air Charter Business

In 2008, VRL Logistics ventured into the Indian air charter industry. It was a gradual progression for the company, from surface transport/passenger travel to air chartering. Keeping in mind the emerging market demand, VRL decided to enter the air-charter industry and serve VVIPs, VIPs and corporate India. To this end, the company had acquired a brand new, Premier 1A by Hawker Beechcraft. VRL offers the Jet aircraft on charter basis to the corporate sector, leisure and tourism sector, special mission charter, event management, advertisement agencies and VIP flights. During financial year 2013-14, the company acquired another second hand aircraft of similar make from Force Motors Ltd, the erstwhile owners and has also deployed this aircraft for charter.

Humble Beginnings

VRL was founded in 1976 by Dr Vijay Sankeshwar in Gadag, a small town in north Karnataka with a single truck and a vision that was way ahead of its time. VRL gradually expanded its services to Bengaluru, Hubli and Belgaum. From this humble beginning, VRL has today grown into a nationally renowned logistics and transport company which is also currently the largest fleet owner of commercial vehicles in India with a fleet of 4,253 vehicles (Including 381 passenger transport vehicles and 3,872 goods transport vehicles amongst others). There is room for more, particularly in the regional aviation realm as it is largely untapped. The South has shown the path of how it has successfully networked Tier-II and -III cities to metros and they have announced expansion plans, indicative of what the market potential could be.