The plight of the beleaguered Jet Airways comes as a stark reminder of the crisis facing the civil aviation industry. Already, the debt-ridden national carrier Air India had no takers for the stake sale put up by the government and is being kept on a life support with the taxpayers’ money. The Kingfisher Airlines had collapsed because of its owner’s profligacy. The cash-strapped Jet Airways has already grounded 54 aircraft and suspended several international routes while its pilots are on the warpath for non-payment of salaries. It is ironic that the domestic aviation industry, expected to grow at 8.5% annually and register a six fold increase in the traffic flow over the next two decades, is facing an existential crisis. Facing a possible collapse, Jet has been trying to restructure its debt and seeking a bailout money from its founder Naresh Goyal and Etihad Airways, the Abu Dhabi-based airline which has a 24% stake in the company. The struggling airline reported a standalone net loss of Rs 587.77 crore for the third quarter ended December 31. On its part, the State Bank of India (SBI), which leads a consortium of lenders, is negotiating with key stakeholders of the airline to see that the Bank-led Provisional Resolution Plan (BLPRP) fructifies. The resolution plan includes infusion of funds, restructuring of debt and the monetisation of assets. The BLPRP has estimated a funding gap of around Rs 8,500 crore, including proposed repayment of aircraft debt of around Rs 1,700 crore, which will be met by appropriate mix of equity infusion, debt restructuring, sale and leaseback or refinancing of aircraft.
In the present form, the BLPRP means that the public sector lenders will become the largest equity owners of the airline, virtually making it a nationalised carrier. Such a rescue model will actually compound the airline sector’s woes because pushing another airline company into public sector would be disastrous. The solution lies in selling it to a stronger promoter or referring the case to insolvency courts. The industry needs consolidation and competition, not life support from governments or creation of monopolies. In the interests of competition in domestic aviation sector, Jet Airways must come out of this turbulence. IndiGo, Air Asia and Vistara are its competitors. Air India is in a comatose condition, being kept alive on a $330 million taxpayer infusion, while Kingfisher, Sahara and Deccan have already slipped into history. The government can help the matters by carrying out the pending reforms in aviation sector. At present, aviation fuel is heavily taxed. Instead, there is a strong case for classifying it as an input and subsuming it into the GST regime so that the airlines can be allowed to claim credit on fuel tax.