India - Turbulence in the skies

Over the past week, the crisis in the civil aviation sector, particularly the financial mess that the airlines find themselves in, has become more acute. Just when the Indian aviation industry, along with tourism, seemed to be on the upswing, the sudden surge in oil prices, and the global financial meltdown have shaken its foundations. The collapse has come at a time when investments running into thousands of crores of rupees were being planned in the aviation sector ̵ 2; notably in the development of airports and expansion of the fleet of airlines. Already in the run-up to the crisis, airlines were not paying their oil bills, services were being curtailed, and airports were also not getting their share of the revenues. The most telling impact in terms of human cost was Jet Airways’ decision to retrench nearly 2,000 of its staff under probation. A clear indication of the seriousness of the situation came when Naresh Goyal and Vijay Mallya, heads of the two fiercely competing airlines, Jet and Kingfisher, met to forge an alliance — something that would have been unthinkable a few months ago. They even invited Air India to join them. But the public sector flier came up with its own controversial plan — a voluntary scheme offered to about 15,000 employees to go on leave without pay for three to five years.

In response to the crisis, Civil Aviation Minister Praful Patel has been working out a bail out package in the face of opposition from some colleagues. The airline industry has sought a Rs.5,000 crore relief package. Jet and Kingfisher owe the oil companies about Rs.2,000 crore, and all the airlines together have run up a bill of over Rs.1,000 crore with the Airports Authority of India. It is to the credit of Mr. Goyal that, being sensitive to the plight of the young men and women and realising the impact of the sacking on the public mood and the image of the airline, he moved immediately to reinstate the staff. Even in the midst of the crisis, there have been some mixed signals: the low cost SpiceJet has announced a reduction in fares at a time when the Jet-Kingfisher combine wants to raise the tariff. The airline industry is a very large employer and constitutes a critical support structure for business and tourism, and obviously the government cannot stand by and see private airlines collapse. Perhaps some form of restructuring of their dues could be thought of along with marginal tax reliefs. The government cannot go very far in using taxpayers’ money to rescue the airlines from the consequences of their reckless business strategies. The airlines themselves need to move towards a sustainable fare structure and business model.