GR Gopinath's Deccan Charters faces severe crisis; puts entire fleet of aircraft on sale
Captain GR Gopinath, the promoter of Deccan Charters, has put his entire fleet of aircraft on sale and fired dozens of employees.
NEW DELHI: Captain GR Gopinath, the promoter of Deccan Charters, has put his entire fleet of aircraft on sale and fired dozens of employees as he grapples with a severe financial crisis, according to two persons with knowledge of the matter.
The company, which has been offering charter services to pilgrims and businessmen since 1997, has not paid employees for more than a year, said these persons. In the last month alone, 11 pilots and 20 technical personnel were laid off and only less than a third of the workforce of around 300 remain, they said, asking not to be identified.
Information gathered from Controller.com, a one-stop online marketplace for aircraft transactions, reveals that Deccan Charters has hired sales agents Flight Source International of the US and Sweden's Savback Helicopters to sell the aircraft. The company, formerly Deccan Aviation, owns 11 helicopters and five turboprop planes, according to the website of aviation regulator Directorate General of Civil Aviation.
In a telephonic conversation with ET, Gopinath denied he was facing financial difficulties, but agreed that his charter company was not "doing well". "The machines are old, some copters were bought 20 years ago, and we couldn't match the new ones owned by cash-rich entrepreneurs."
There are too many people who own aircraft in India, said Gopinath. "And they rarely use the aircraft. When they don't, they rent them."
The charter business kickstarted Gopinath's career as India's first low-cost, low-fare air travel entrepreneur, but his businesses have been nothing short of a roller coaster. In 2003, he founded Air Deccan, which started auspiciously, but soon ran into financial problems.
Four years later, Kingfisher Airlines promoter Vijay Mallya bought and merged Air Deccan with his own carrier. Gopinath used the money from the deal to start Deccan 360, a cargo carrier, in May 2009. But that enterprise too was squeezed by a severe cash crunch and shut shop in 2011.
Gopinath returned to the mainstream airline business this August with the launch of Deccan Shuttles, a charter service that connects towns in Gujarat.
Bharath Mahadevan, a former senior executive of Jet Airways who is about to publish a book on Indian aviation, says Gopinath is known in aviation circles as the one who got away scot-free.
WET-LEASE GAMBLE FLOPS FOR DECCAN
This is a reference to the Kingfisher deal before Air Deccan's financial troubles became insurmountable. "Gopinath always had the ideas, but no (business) fundamentals. In my opinion, he is a just a showman." Gopinath's latest troubles began when Deccan Charters was barred by the Shri Mata Vaishno Devi Shrine Board from operating in Vaishno Devi and Amarnath last year, said the first person, a senior pilot who quit earlier this year after pay became irregular.
The Hindu shrines on hilltops together contributed up to 60% of Deccan's total revenues, said the second person, an analyst, who is familiar with the company's business. "Deccan operated up to seven shuttles an hour, carrying around six passengers. It made nearly Rs 5 crore a month in these sites."
The company has challenged the board's decision and the Supreme Court is hearing the case. Around that time, Deccan, which operates as a non-scheduled operator's permit holder (carriers that do not follow a fixed schedule), tried to import two aircraft on wet lease (an arrangement where an operator leases aircraft and crew and is charged for hours flown). DGCA authorities refused permission because it was against rules and other non-scheduled operators would have sought a similar leeway.
The wet-lease gamble flopped miserably, said the pilot. "He had paid a significant amount of money to lessors and the planes had even reached Dubai before they were turned back."
Soon after, Gopinath purchased the stake Mallya held in Deccan Charters as part of the 2007 deal for Rs 60 crore, which depleted his cash reserves further, the pilot added. Today, Gopinath is the 100% owner of Deccan Charters.
According to Gopinath, the aircraft sale is only a change in business model. "Pilot salaries have risen 10 times as have the prices of spare parts. But revenues were not keeping pace." Deccan is demanding Rs 44 crore for the seven copters and one turboprop still on display at Controller.com. Deccan Shuttles will operate with two turboprops on lease.
Gopinath said he will also focus on Powerfly, a partnership with the Tatas, which allows "fractional ownership" of private jets and choppers. Under this business arrangement, modelled on the lines of NetJets, an offshoot of Warren Buffett's Berkshire Hathaway, customers who buy a "share" of a plane are guaranteed flying hours, often up to 400 hours annually or a few days.
Gopinath said Deccan Technical Services, a unit of Deccan Charters, which maintains the choppers of companies such as Reliance Industries and Essar Group, is still a lucrative business. "We cater to 50 corporates in India." There are unconfirmed reports that Gopinath, whose five-year non-compete clause with Mallya ends on January 28, 2013, could partner a foreign airline after the government allowed purchase of 49% in Indian carriers.