Interlysis with Shyson Thomas: Air Pegasus, Unplugged

• The airline hoped to launch towards the end of September 2014.
• It would connect six to eight destinations at first.
• A third aircraft was expected by December 2014, taking the network to 13 destinations.
• Fleet plan: four aircraft in the first year, then two a year, capped at 10. No intention of buying aircraft.
• Firmly regional: destinations within 1.5 hours of Bangalore by ATR 72, about 350 NM.
• Long term: Pegasus East, Pegasus West and Pegasus North.
• Target break even: 13 months.
• Enough pilots and cabin crew for two aircraft. All cabin crew were women.
• Six engineers; engineering outsourced to Airworks, Hosur.

Where things stood

Air Pegasus had completed most of the formalities to lease two ATR aircraft. They were expected around 20 August, and if all went to plan the airline expected its AOP towards the end of September, with flights to follow. We felt early to mid October was more realistic.

Shyson Thomas, MD and CEO, smiled little and worked a lot. Born on 21 January, he firmly saw himself as an Aquarius, and the sign fitted: sharp on ideas, allergic to nonsense, wary of others and hard to convince, which made him micro manage the airline. That might work against it in time. But his logic was often so solid you had no choice but to agree. His wife and son sat on the board, yet he was in absolute control, so understanding him meant understanding the airline. What follows condenses a 102 question interview, with our own comments.

About the airline

Getting aircraft. The licence came about two years earlier, but after the Kingfisher collapse no lessor wanted aircraft in India. Two worries kept coming up: Indian law did not support repossession on default, and Pegasus was a start up. He did not give up, and now had three ATR 72-500s. Lessors normally took three months of lease as advance; after Paramount and Kingfisher this had reportedly jumped to 36 months for Indian operators. Pegasus, we learnt, secured its aircraft with a nine month advance.

Why the delay. The company was registered on 8 October 2007 and got its first NOC in late 2011. The idea dated from 2007, but when Bangalore moved to Devanahalli and Hyderabad to Shamshabad in 2008, regional travel in the south slumped as people took trains and cars. By 2011 travellers had adjusted. In early 2014 Pegasus had signed and paid for two aircraft registered in Israel. Those could not overfly Arab countries, so the plan was to deregister them with a DGCA official on site. The official's travel was delayed by political clearances, then Israeli embassies shut worldwide, visas ran out and war broke out. The deal was abandoned at a cost of about four months, and two expat pilots lined up for it went elsewhere.

Funding and structure. The parent was Decor Aviation Pvt Ltd, a ground handler; Chartered Air Freights India Pvt Ltd was the other family company. Paid up capital was above the INR 12 crore required for a Regional Scheduled Operator Permit, and he said he could add the INR 4 crore per extra aircraft, up to the INR 20 crore cap. Decor held about 25%, Shyson about 30%, his wife 20 to 23%, and the rest sat with his son and daughter. The bank gave working capital and guarantees only. He had projected a nine month break even to the banks, who insisted on two years; he settled on 13 months, with a break even load factor of 65 to 70%. He was spending about INR 30 lakh a month and had already put in around INR 2 crore. We believed investors were waiting for the airline to start flying.

Model and network. A regional, "right cost" airline rather than a low cost one, with a fixed fare structure and no undercutting. The 13 planned cities were Bangalore, Hyderabad, Chennai, Cochin, Trivandrum, Tuticorin, Hubli, Mangalore, Coimbatore, Rajahmundry, Vijayawada or Vishakhapatnam, Madurai, Trichy and Calicut. The website also listed Goa, Belgaum and Tirupati. Both aircraft would start on six to eight destinations, adding frequency rather than new airports, and reach 13 with the third aircraft. Kochi was dropped as an engineering base. The airline hoped to operate from HAL Airport, with BIAL as the fall back.

He criticised Air Costa's choice of Embraer jets for short regional hops, arguing the ATR burned far less fuel below 350 NM, and said he did not want to fight national players. We noted that the E-Jet's fuel figures were not as bad as he claimed and that a jet climbs faster, but agreed that Air Costa's short sector deployment was not ideal. He had sought the blessing of Jet Airways' Naresh Goyal and offered to feed Jet's international flights at Bangalore.

Phases. Pegasus East at Kolkata after three years, covering the north east with six to eight aircraft; Pegasus West at Ahmedabad; Pegasus North around Jalandhar or Chandigarh. Each could run on a separate AOP, with a central hub at Nagpur or Bhopal served by two Airbus jets. We questioned whether multiple AOPs made more sense than one pan India licence.

Timeline. AOP applied for on 28 January 2014, after two NOC renewals. Manuals were submitted; aircraft import, proving flights, a preparedness meeting and a DGCA stores inspection remained. He expected two aircraft between 11 and 18 August, a week of registration formalities, the AOP by early September, sales to open on 1 September, and flights between 15 and 30 September. Asked for a guarantee, he raised his voice: hundred percent. Our estimate was proving flights by mid September, AOP at the end of September and operations in October.

People and costs. He said there were 20 pilots with nine captains, 20 cabin crew and six engineers, with engineering outsourced to Airworks under a signed agreement. Our count was 19 pilots: 8 captains, two of them expats, and 11 first officers. A second batch of 6 captains and 9 first officers was lined up. The Chief Pilot Training and TRE was Demetrios Sipsas from Greece, formerly of Air Deccan, and retired Jet Airways ATR captain Murali Sundaram was deputy COO. Two expat examiners were arriving on 2 August 2014 and would be sent back after the launch because they were expensive. Pilots received a stipend, not salaries, until operations began. Overheads would be low because Decor already had ground handling staff and equipment. Airport offices and counters were being applied for only as needed to avoid rent. He dismissed the importance of engine maintenance contracts, saying Kingfisher failed through mismanagement; we disagreed, noting IndiGo's contracts kept it flying through the IAE engine issues while Kingfisher grounded aircraft. A chartered accountant by profession, he would keep the cheque books, approve every purchase and run three daily conference calls with station heads. The airline planned a fuel audit and a policy of carrying more fuel rather than just enough.

Aircraft

Two aircraft were ex Kingfisher, returned to the lessor in February and April 2012 for lease defaults and in storage since. The third came from Europe. All were leased ATR 72-500s. He called them 2007 models under seven years old; they were built in late December 2005 and were about 8.5 years old. One was fitted with 72 seats and the other with 66. Registrations and lease rates were shared with us but withheld at his request.

He chose the ATR over the Q400 because ATRs had flown in India since the 1990s with more than 17 in service, spares and trained crews were available locally, and C and D checks could be done at Airworks in Hosur. He claimed SpiceJet regretted its Q400s, which had to go to Istanbul for C checks and relied on expensive expat pilots. A Q400 image outside his office was, he said, a branding agency's mistake. We noted that in a 2011 IBN Live interview he had said both the Q400 and the ATR 72-500 were under evaluation. ATR, he said, was supporting the airline keenly as it had no major Indian customer at the time. On turboprops' poor image, he argued a 72 seater at 50 passengers made money where a 180 seat jet could not on Bangalore to Chennai; we put the image problem down to cabin vibration and public confusion with old piston aircraft.

The man

He described himself as adamant but reasonable, quick to react, willing to apologise when wrong, and unable to keep secrets. A line from his CA institute stayed with him: there may be a failure in your attempt, but there should not be a failure to attempt. He promised daily performance reviews and quick route changes. He would hand Decor to a manager and keep only decisions. Why an airline? Because Decor already did everything for IndiGo, SpiceJet and Jet Airways except fly the aircraft. It was a business decision, and the aircraft choice was his own research, "a monopoly decision".