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Turbulence ahead

Like telecom and financial services, aviation has been a stand-out sector after liberalisation.

India may be the fastest growing aviation market in the world, clocking double digit growth over the last four years, but the sector is in a shambles. The turmoil in Jet Airways, the country’s oldest listed private sector airline, has forced local lenders, who have taken control for now, to engage with the government to find a solution to ensure that the airline which has an accumulated debt over half a billion USD does not go the way of Kingfisher Airlines. The full service airline, which exemplified global service standards earlier, is now a pale shadow of itself: Its fleet strength is down to 14, or one-fifth of its original size, after non-payment to lessors, leading to grounding of aircraft, and cancellations across its domestic and global network. There is mounting pressure from over 23,000 employees of the airline, especially pilots, who have not been paid for the past few months, fuel suppliers and infrastructure providers, besides passengers who had booked in advance and are now grounded.

A rescue effort has been initiated by the lenders led by SBI after the airline’s promoter, Naresh Goyal, agreed to exit with the airline’s partner, Etihad, which owns 24 per cent, and a couple of other investors showing interest in a bid process which is underway. The lenders have promised to infuse Rs 1,500 crore after a new investor comes in. But in an election season, any such process to salvage the fortunes of a firm could well be fractious, and bad optics too, if another company is allowed to go under at a time when the incumbent government is under attack for not creating adequate jobs. A case in point is Air India, which did not find a single buyer even after it was put on the block by the government last year. It is an irony that the fastest growing aviation market is dotted with airlines which are bleeding, including the market leader - a fallout of mindless capacity expansion, high fuel and operational costs, predatory pricing and regulatory failure. The longer the issue festers, be it Jet or other industry players, and the longer it takes to address the structural issues of the aviation sector, including the distortions, inefficiencies and the foreign investment hurdles in a capital intensive industry, besides the burden of taxes, the higher will be the economic costs.

Like telecom and financial services, aviation has been a stand-out sector after liberalisation. There is much at stake in ensuring the health and competitive spirit of this industry given that it can be a economic force multiplier with a clear knock-on impact in terms of creating jobs.