No bailout

An efficient civil aviation sector is essential to an economy growing as fast as India’s. It is unfortunate,then,that ours seems to be in near-constant trouble. Kingfisher Airlines’ financial difficulties are more severe than most,but no major domestic airline,barring the low-cost IndiGo,is making a profit. Yet,while that should worry us,there is absolutely no call to consider the possibility of government assistance to Kingfisher,or any other airline. The question,in fact,should not even have been raised.

It is the government’s attitude to Air India that has caused people to think that New Delhi feels the aviation sector is fertile ground for intervention. After all,the group of ministers overseeing Air India’s attempted turnaround has just agreed to provide a sovereign guarantee to Air India’s debt obligations — which sum up to an awesome Rs 19,000 crore. Air India has,unquestionably,got much more than a playing field,as the CAG famously demanded. Consider the question of routes and landing rights,something within the Centre’s control,and which it uses to preserve Air India’s turf,and enforce local monopolies. The best bilateral routes are being squatted on by Air India,which is so inefficient,and so little desired by travellers that it has steadily lost ground to foreign airlines that fly the same routes. Even when areas are first opened up to private operators — as Southeast Asia technically was,some years ago — the best routes are often kept reserved for Air India. In that case,routes to Thailand,for example,were kept for the state-owned airline. And of course,Jet and Kingfisher are not permitted to fly the lucrative non-stop route between India and the US. Nor are they allowed to fly to Riyadh,a route on which Air India managed to cause plane-load factor to fall from 81.4 to 63.6 thanks to a spike in delays and rescheduling.

What is needed is a strong dose of market discipline,and the imposition of normal business rules. When a company like Kingfisher Airlines is in trouble,the usual route is for the promoters to raise more equity. Till the crucial reform of FDI in airlines works its way through the UPA’s policy paralysis,the best approach is to insist that promoters clean up their own mess with their own money,or by diluting their equity. That is,in fact,the route to health for the rest of the sector,too — including Air India.