A pattern of failure

It may be bad news in the midst of the ongoing parliamentary election season that the country's second-largest airline by traffic share, Jet Airways, with some 18,000 employees on board, collapsed and got grounded last week. Jet employees, including pilots, working without salaries since January, are now suddenly jobless. Notwithstanding the fact that the situation has caused a big embarrassment for the Modi government at this crucial election period, the administration could do little to make Jet airborne anytime soon as the airline has failed to pay even the aircraft lease dues. Both the airline and the government are under fire from ordinary passengers who advance-booked their tickets with Jet Airways for cheaper travel and now find little hope to recover the money from the airline. Their travel plans have gone for a six. They are knocking at the doors of the civil aviation and finance ministries and the industry regulator.

The airline owes over Rs 11,000 crore to its lenders. No one knows for sure how much the airline owes to its suppliers and service providers. As in the case of the NRI Vijay Mallya-promoted Kingfisher Airlines, NRI Naresh Goyal-promoted Jet too had borrowed heavily from India's public sector banks, led by SBI. Last Friday, Air India chairman Ashwani Lohani held talks with SBI chairman Rajnish Kumar expressing the national carrier's interest in wet-leasing (with crew) five Boeing 777s from the grounded Jet Airways. SpiceJet has offered to wet-lease as many as 40 Jet Airways Boeing 737s. Jet owes some $1.52 billion to 26 entities, including ICICI's Dubai branch and PNB's Hong Kong branch, besides SBI, the country's largest lender.

A product of India's 'open sky' policy introduced in the early 1990s, Jet Airways is now among 10 privately-promoted airlines that collapsed in less than three decades. Other defunct carriers include giant East-West Airlines, also promoted by a little known Persian Gulf-based NRI, Thakiyudeen Wahid, Damania Airways, run by a hatchery owner, SK Modi-promoted ModiLuft, misleadingly suggesting connections with Germany's Lufthansa, convicted chit fund cheat Subrata Roy-promoted Sahara Airlines and captain Gopinath's Air Deccan. Together, these airlines had handed down debt and other liabilities worth close to Rs 100,000 crore on lenders, suppliers, and other stakeholders.

Almost all of them were stock exchange-listed public companies, where a director's liability, other than personal mortgages, is limited only to the number of shares held by each. Interestingly, some of these entrepreneurs even had suspect antecedents – one headed a group of chronic defaulters, another was eventually shot dead by underworld gangsters and yet another was reportedly supported financially by notorious smugglers Dawood Ibrahim and Chhota Shakeel. The government did little to investigate into such alleged antecedents.

Suffice it to say that almost all of these promoters had strong political connections and managed to borrow heavily from public sector banks, ever amenable to political pressure and manipulation. Jet Airways was promoted by Isle of Man-registered Tail Winds Inc., in which Goyal had reportedly a majority stake. Surprisingly, nobody in the government, or in the Reserve Bank, questioned the background of NRI promoters of private airlines in India and their real external sources of wealth. Going by the published documents, at the end of 2017-18, Jet Airways had a market share of 15.4 per cent and a revenue of US$ 3.7 billion. Its net income was $(-)92 million. The fleet size was 121. It placed orders for 233 aircraft as India's air travel growth was among the highest in the world.

Incidentally, the collapse of both Kingfisher Airlines and Jet Airways appears to be more to do with the management style of their respective promoters and also probably their promoters' penchant for private wealth expansion rather than net corporate asset creation. Both the airlines were run like a family-owned shop. The show in Jet Airways was reportedly run by Naresh Goyal, his wife Anita and son Nivaan. The family allegedly influenced key bureaucrats and ministers to repeatedly swing policies in their favour.

In contrast, the low-cost Indigo Airlines, currently India's largest by fleet-size and passengers carried, promoted by US-based NRI Rakesh Gangwal and Rahul Bhatia of InterGlobe Enterprises, is run professionally. The company commenced operation in 2006 and went public in 2015. Its primary hub is Delhi's Indira Gandhi International Airport. At the end of 2017-18, Indigo's revenue was US$3.5 billion, net income $330 million, total assets $3.1 billion and employees' strength of 14,604 (as of March 2017). Its fleet size was 167. The airline had placed orders for 437 aircraft.

Going by the operations of other airlines such as Air India, with a market share of around 14 per cent, SpiceJet (around 13.2 per cent), GoAir, AirAsia India, Vistara Airlines, promoted by Tata Sons and Singapore Airlines, JetLite and TrueJet, there should be no immediate policy panic from the government's side under public or promoter's pressure. Anyway, the new government, expected to be fully formed in June, should take a call on a more pragmatic civil aviation policy, taking into account of a promoter's background and access to funds.

The collapse of Kingfisher and Jet Airways should also make the government relook at Air India's strength as the country's most reliable domestic-cum-international airline. Vested interests in the business are already campaigning about Air India's current debt situation. However, a prudent analysis will show that the airline is not doing badly. In fact, under its current management and less interference from the government, AI is already on a fast recovery track. With proper policy support from the government, the public sector airline is capable of emerging as India's No.1 flag carrier within next five years or so and become ones like Germany's Lufthansa, the UK's British Airways, American Airline of the US and China Southern of China.

(The views expressed are strictly personal)