Sep 23 2023, 09:39
lessons from the demise of India’s private airlines:
Airline failures put a permanent blemish on the reputation of their promoters. But what really matters is the extent of damage such incidents cause to all stakeholders and taxpayers. Detecting weakness well in advance and taking measures to prevent collapses is the only solution.
At the world’s largest biennial aviation trade fair, the Paris Air Show, plane maker Airbus had organised a gala event for top airline executives. In attendance were Jet Airways’ founder Naresh Goyal and Kingfisher Airlines’ Vijay Mallya.
“Goyal and Airbus executives had a big fight to get the seat back, but Mallya didn’t budge,” recalls a former top Kingfisher Airlines’ executive who wished not to be named, adding, “He [Mallya] will do anything to get attention, even if it seems childish”.
India’s aviation sector completed two decades since the launch of the country’s first low-cost airline, Air Deccan. In the industry’s extremely turbulent flight since then, three major airlines run by India’s biggest corporate barons — Mallya’s Kingfisher, Goyal’s Jet, and Nusli Wadia’s Go First — have all collapsed like a pack of cards.
The failure of their flashy ventures leaves an indelible blemish on the reputation of business tycoons. But beyond that, what really matters is the extent of the damage such incidents cause.
Data from multiple sources including court filings shows that the three private airlines mentioned above owe around INR50,000 crore to bankers, vendors, aircraft lessors, travel agents, employees, trainee pilots, and passengers.
India’s aviation sector has grown from around 30 million in annual passenger traffic to around 200 million over the last two decades at an astronomical cost of over INR1 lakh crore — most of which is to be borne by taxpayers.
Banks have recovered nearly INR7,000 crore from the full-service airline, which went belly up in 2012, since its promoter Mallya had given personal guarantees and money could be recovered by selling his shares and luxury properties including the iconic Kingfisher Villa in Goa.
In the case of Jet Airways, which filed for bankruptcy at the National Company Law Tribunal (NCLT) in 2019, banks are likely to get only around INR400 of the nearly INR8,000 crore lent.
That means a haircut of nearly 95%, mostly to taxpayer-funded banks including SBI, Yes Bank, Punjab National Bank, IDBI Bank, Canara Bank, and Bank of India.
In the case of Jet Airways, too, the tax deducted at source was not deposited for a few months before it went bankrupt.
From the 1990s onwards, there is a big list of airlines that have gone down. It’s all cash flow-based lending since airlines have no assets… If an airline goes bankrupt, banks can’t do anything. They should be very careful. Not everyone is a Tata or an Air India",says Rajnish,
Kumar,former chairman,SBI.
source:et
Sep 23 2023, 10:36
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