lifeboats won’t end airline crisis

The bank-led restructuring package for Jet Airways, at first blush, appears solely guided by the sovereign’s self-interest. Per RBI norms, banks can convert debt into equity for as little as Rs 1 in any firm that defaults on loan payments or when a company’s book value per share turns negative.

There are plenty such enterprises ticking these boxes, but lenders are giving them only two options: Pay up or give up. Jet is neither an exception nor did its promoters make heartfelt pleas prompting an out-of-the-box restructuring plan. The truth is, a no-rescue act can have catastrophic consequences involving 23,000 job losses, and a steep rise in air fares. Given that it is election year, such damage is needless and avoidable for the government.

This isn’t the first time banks are resorting to a debt-equity swap. We have seen them do this and fail spectacularly with the now-defunct Kingfisher Airlines. But now we are being told it’s different as Jet’s promoters will bring in equity capital unlike in Kingfisher. Moreover, the arrangement they say is only temporary allowing Jet time to raise capital by monetising assets, though the end-game lies with banks if they can exit at profitable valuations. For now, a Rs 8,500 crore lifeboat is being readied, but will it end the crisis? Hardly. 

For, all other Indian airlines are struggling, including market leader Indigo, which recently joined the sorry parade reporting a 75 per cent fall in its net profit last quarter. The troubles of the airlines are getting worsened by rising pilot shortage, even as operators haven’t fully recovered from the deep scars due to volatile fuel prices and currency fluctuation last year. Given the price-sensitive Indian market, airlines aren’t entirely flexible to jack up fares and should fuel prices move an inch, the industry will get haemorrhaged once again, with companies queuing up for rescue packages. Airlines must find means to make money, as the trouble with bailouts is that eventually, banks and governments too run out of money.