Air India Seeks $600M Compensation for Pakistan Airspace Ban

Air India has projected an additional $600 million in costs if Pakistan's airspace ban continues for a year, and is requesting compensation from the Indian government, according to a company letter seen by sources.

Following a tit-for-tat response to a recent attack on tourists in Kashmir, Pakistan closed its airspace to Indian carriers, leaving Air India and other airlines facing longer flight times and increased fuel expenses.

On April 27, Air India approached the Indian government, requesting a "subsidy model" to offset the financial impact, estimating a loss of over 50 billion Indian rupees ($591 million) annually for as long as the ban is in place. The airline's letter, sent to the Civil Aviation Ministry, suggested that a subsidy for affected international flights would be a fair and transparent option, with the subsidy to be removed when the situation improves.

The letter highlighted that the impact on Air India is particularly severe, due to extra fuel consumption and additional crew requirements caused by detours around Pakistan’s airspace.

Air India declined to comment, and the Civil Aviation Ministry did not immediately respond to requests for a statement. The airline’s request comes after the government directed its executives to assess the airspace ban’s impact on Indian airlines.

Air India, now owned by the Tata Group, is undergoing a multi-billion-dollar turnaround after years of government ownership. It recently reported a net loss of $520 million for the fiscal year 2023-2024, on sales of $4.6 billion. The airline is also facing challenges related to jet delivery delays from Boeing and Airbus.

With a 26.5% market share in India, Air India operates numerous long-haul flights to destinations in Europe, North America, and Canada, frequently crossing Pakistani airspace. Its market share in these regions exceeds that of its main domestic competitor, IndiGo.

Data shows that in April, Air India, along with its budget unit Air India Express, and IndiGo, had approximately 1,200 flights scheduled from New Delhi to Europe, the Middle East, and North America.

The Indian government is exploring ways to mitigate the financial impact on the airline industry from the airspace closure, according to sources familiar with the discussions. One option under consideration is flying over more challenging terrain closer to China, along with potential tax exemptions for affected airlines.

In its letter, Air India also requested the government to negotiate overflight clearances with Chinese authorities and to approve the carrying of additional pilots on long-haul flights to the United States and Canada to manage longer travel times.