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BW Businessworld

Cancel The Debt Recast

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Since my last column, which dealt with the issue of air fares charged by airlines (‘Being Fair On Fares', BW, 13 December), matters have actually got worse. The regulator DGCA asked all airlines to display fares route-wise on their websites and now, as and when they feel some fare seems too high, the airline is receiving a call asking them to bring it down. While this may be the best way to keep DGCA officials occupied, I don't see it as much of a solution to the problem. I stick to my view that airlines should be free to charge what they want on different routes and if passengers find the fare too high, they are free to adopt an alternative mode of travel.

But — and this is a big but — I also feel that there is no justification in the government and the nationalised banks having to restructure debt, and bail out aviation companies that have managed to land themselves in a spot while operating in the free market environment.

I am referring to the bail-out or debt restructuring package that is being worked out for Jet Airways and Kingfisher Airlines. If airlines want no interference in the way they operate and the fares they charge from passengers, there is no reason for us — taxpayers and passengers — to indirectly bail them out when they manage to land themselves in trouble. They cannot ask for the best of both worlds — freedom to do whatever they wish and then ask for aid when they have problems.

We didn't ask either Jet Airways or Kingfisher to go in for expensive — and in the case of Jet, messy — buy-outs such as of  Sahara or Air Deccan. No one asked them to expand capacity. Neither did anyone push them to introduce all kinds of routes, both overseas and in India, which proved uneconomic. No one asked Vijay Mallya to spend money like water and introduce the kind of services he does (even though  people may enjoy them), unmindful of what it costs him and his airline. No one asked him to hire employees at exorbitant rates.

While airlines definitely face many external factors that affect their performance, there are better run airlines, such as an Emirates or a Singapore Airlines, which continued to report profits even during downturns. So, a lot of the mess that the airlines in India find themselves in is of their own making.

The debt restructuring — which is supposed to offer additional credit lines to the airlines in addition to a moratorium on interest payments — in my view, has mainly been pushed through because airline owners Naresh Goyal and Mallya have significant political influence. (The latter is also a Rajya Sabha MP.)

It is a well known fact that it was Goyal's strenuous objections that played at least a role in preventing Ratan Tata from setting up his airline (a matter that has been in the limelight in recent weeks). No matter which government has been in power, Goyal has always managed to operate in a favourable policy environment.

Praful Patel has often been accused of being partial to the private airlines such as Jet and Kingfisher, often at the expense of Air India. That Patel is close friends with many of the airline CEOs is well known. He himself has acknowledged and defended this on many occasions on the grounds that a man can choose his own friends.

But this is perhaps taking the friendship too far. Why should public sector banks be asked to offer a moratorium on interest payments and put off repayments? What guarantee is there that these airlines will be in a position to pay these debts at a later date? Did anyone step in to assist Paramount, which stopped operations a few months ago?
Things in the sector could actually go from bad to worse, as aviation is an unpredictable business. Patel had justified the debt recast with the argument that it would help the national carrier Air India and not just the private carriers. However, as things have unfolded — banks are hesitant to touch Air India's colossal debts unless the government increases its own equity in the carrier — it now appears that only the private carriers may benefit.

My question is, why can't we allow companies to wind up if they are unable to continue? All over the world, airlines go belly-up, are bought or sold, or go in for Chapter 11 as in the US. Fed up with mounting dues, fuel suppliers BPCL and HPCL have, in fact, asked many times in the past that Kingfisher be wound up. In India, however, no company really ever goes bust. Public sector banks step in and rescue whichever sector it may be — it has happened with steel, real estate and now with airlines. Why?

anjulibhargava at gmail dot com

(This story was published in Businessworld Issue Dated 27-12-2010)