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  Opinion   Edit  23 Feb 2019  Is Jet Airways’ bailout in the national interest?

Is Jet Airways’ bailout in the national interest?

THE ASIAN AGE.
Published : Feb 23, 2019, 12:38 am IST
Updated : Feb 23, 2019, 12:38 am IST

Not a financial quarter passes without an European budget airline caving in.

The budget airlines that ruined the business models of full-service airlines in cutthroat competition following the Indigo model are themselves facing headwinds.
 The budget airlines that ruined the business models of full-service airlines in cutthroat competition following the Indigo model are themselves facing headwinds.

India may soon be saddled with two bleeding national airlines, with Jet Airways going under and possibly needing to be rescued by the banks. If the banks do step in with a debt-equity swap deal, though they are likely to lose a lot of money in the process, Jet will join national carrier Air India, which is saddled with Rs 50,000 crores in debt and requiring steady infusions of cash to keep its fleet in the air. Jet Airways is proposing a rescue deal of Rs 7,654 crores and offering equity at a token Rs 1 for 11.4 crore shares to the banks, though there are doubts on whether even such a large Rs 8,500-core bailout will be sufficient for it to clear its dues and be in operational shape to turn around and go back into the black in the coming years.

Promoted as the country's first private commercial airline in the early days of economic liberation and open skies in the 1990s, Jet seemed a privileged airline for which ministerial favours were done in clearances and routes to the extent of ruining Air India's operational profitability. Now the cycle is complete with Jet in the doldrums and likely to add to the aviation bubble that seems ready to burst in India as well. The budget airlines that ruined the business models of full-service airlines in cutthroat competition following the Indigo model are themselves facing headwinds. Not a financial quarter passes without an European budget airline caving in. Ironically, Indigo's profits shrank last quarter by a whopping 75 per cent and its creditable on-time performance has been hit by problems in pilot logistics as well as a shortage of commanders.

 

Is the Jet bailout in the national interest? Considering the Kingfisher debacle, the known hazards far outstrip unknown factors aiding a recovery that depends on Jet raising capital, abroad and in India, and selling aircraft. The downside is the loss of over 20,000 jobs if Jet goes under and doesn't wish to risk contributing more to the loss of around `20 crores a day that country's three top private airlines suffered for most of last year. The problem of modern aviation, which is expanding leaps and bounds, lies in the new model of dynamic pricing of airline seats. Aviation fuel prices, for a long time favouarble in previous years, are a huge factor on which operational costs are predicated, besides rising maintenance and personnel costs, not to speak of the fear of exchange rate pressures as in 2018. Large queries remain to be addressed if a rejigged Jet Airways is to be run by bankers and bureaucrats in the interim as the Indian public don't need to sponsor a second airline if it cannot price seats at a value sufficient to stop the bleeding. The banks would have to get into a Jet deal on wings and a prayer.

 

Tags: jet airways, bailout