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With three-week lockdown, Auto and Aviation sectors face crippling loss in revenue 

The Wire , Mar 25, 2020

With Prime Minister Narendra Modi announcing a national lockdown for the next three weeks, India’s automobile and aviation industries now stare at steep losses.

The Society of Indian Automobile Manufacturers (SIAM) has said in a statement that the closure of most manufacturing plants by the industry and their component makers could lead to a collective loss in revenue of more than Rs 2,000 crore per day.

“As per quick estimates by SIAM, it is expected that plant closure of auto OEMs and components will lead to loss of more than Rs 2,300 crore in turnover for each day of closure,” SIAM president Rajan Wadhera said in a statement.

A three-week full shutdown of the whole automotive industry would translate into a loss in revenue of nearly Rs 48,000 crore.

Most major automakers like Maruti Suzuki India, Hyundai, Honda, Mahindra, Toyota Kirloskar Motor and Tata Motors have either announced a temporary shutdown of their plants or will do so in the next few days.

Two-wheeler makers like Hero MotoCorp, Honda Motorcycle, TVS Motor Company, Bajaj Auto, Yamaha and Suzuki Motorcycle have also suspended production.

Several firms, like the Bajaj Group, have promised not to cut salaries or fire their employees during the shutdown period.

“I will cut my salary to zero before a single employee is laid off,” Rajiv Bajaj, managing director and CEO of Bajaj Auto, said in a recent TV interview.

Besides auto manufacturers, tyre makers and other major auto component makers too have shut down most of their manufacturing activities due to the coronavirus outbreak.

Red skies

The outlook for India’s aviation industry is also extremely dire. Capa India recently estimated that Indian airlines could ground over 150 planes in the coming days; these projections do not take into account the new three-week lockdown announced by Modi.

A recent report put out by the Federation of Indian Chambers of Commerce and Industry (FICCI) said that some domestic airlines have reported a more than a 30% drop in domestic travel this summer, compared with last year, while fares on popular domestic routes have plunged 20-25%.

“According to the data available with the ministry of civil aviation, nearly 585 international flights have been cancelled to and from India between 1 February and 6 March because of the outbreak of coronavirus. Cash reserves of airline companies are running low and many are almost at the brink of bankruptcy,” the report said.

The worst-case scenario, projected by ICICI Securities, says that IndiGo and SpiceJet may report losses worth Rs 5,494 crore and Rs 1,412 crore respectively in the quarter ended June if there is a complete business shutdown.

“If operations normalise from the second quarter (July-September), the airlines would be able to recoup most of their losses on account of lower fuel costs,” ICICI Securities said. The pace of recovery for SpiceJet, however, may be slower than IndiGo because of its higher fixed costs and less fuel efficient aircraft.