Don't bail out

After much delay, the Government of India has finally decided to come to the rescue of Air India, which was grounded in a sea of financial trouble. If it took so long to hammer out a rescue package for the national carrier, there should be no question of even thinking of a bailout for a private airline, Kingfisher. Several airlines have got into a financial mess and cannot now queue up for relief from the Union Civil Aviation or Finance Ministries. As the old adage goes, you have to cut your coat according to the cloth, and if private airlines began flying even before they could walk, they have to pay the price. They found it profitable when the going was good and there were fewer competitors. Now that competition is tight and airfares cannot be raised at will, the business model, financial management, and operational efficiency make all the difference to success or failure. In the case of Kingfisher, the entire industry knew that the crisis was imminent. Salaries to staff were being delayed; aviation fuel bills were not being paid on time; dues to the Airports Authority of India and the new private airports were also mounting. Pilots and other staff began deserting the troubled airline. In the face of such turbulence, the airline started cancelling 40 to 50 services a day over the past week. Kingfisher claims to be operating, on an average, some 300 out of 350 daily services, and the DGCA promptly slapped a notice on the airline for doing so without prior announcement.

For its part, Kingfisher would like its passengers and the authorities to believe that the ongoing cancellations are on account of “route rationalisation” and “reconfiguration of aircraft for full service market.” The management is laying the blame on oil prices, high taxes imposed by the States, the fall in the value of the rupee, and the operation of services on “non-profitable routes.” When ordinary citizens are being forced to pay more for the fuel, there can be no reason to subsidise airlines. The central government has repeatedly urged the States to lower the VAT or Sales tax on petrol and diesel, and some States have obliged. The time is ripe for a review of the Civil Aviation policy. A major decision on aviation policy relates to FDI in the industry. From the 1990s, when there was talk of opening civil aviation to foreign investment and both Singapore Airlines and the Tatas were interested in taking a major stake in Air India, the government has been dragging its feet on this sensitive issue. The time has come to make a clear and transparent decision on FDI in an industry that has acquired considerable popularity among the travelling public but needs to get its house in order.