The Air India effect

Why govt is too patient with Kingfisher

On January 7, 2009, Ramalinga Raju of Satyam Computers confessed in a letter to the Bombay Stock Exchange that he had been overstating (that is, fudging) his company’s profits for six years. Four days later, the government appointed a caretaker board to find a buyer. Four months later, the company was owned by Tech Mahindra, the highest bidder, and the Satyam crisis was over. Compare this with Kingfisher Airlines’ crisis, even though many would argue that a comparison between the two cases is not entirely apt. In November last year, the airline announced that flights would be curtailed owing to “aircraft reconfiguration”; two months later the excuse was changed to “bird hits”. Meanwhile, Kingfisher’s dues to government oil companies stood at Rs 600 crore. In the four months since then, the airline had its bank accounts frozen, then attached by the income tax department, salaries remained unpaid and its Oneworld Alliance membership was put on hold. The news didn’t get better this month. The airline has been suspended from the International Air Transport Association, its dues to oil companies burgeoned, and flights continued to be disrupted as unpaid pilots refused to fly.

Yet, does the government ground the airline and appoint a committee to search for a buyer? No. Instead its chairman, the Rajya Sabha Member Vijay Mallya, met Civil Aviation Minister Ajit Singh for about 45 minutes this week and Mr Singh said he would wait for a report from the director-general of civil aviation on the airline, and then consider action if flight safety was compromised. This is a strange position to take: surely, any airline that has accumulated losses of Rs 6,000 crore, owes the banks Rs 7,000 crore, and has unpaid, demoralised employees must be already compromising on safety.

The contrast is easy to explain. With Satyam, which was listed on the New York Stock Exchange, India had a global reputation to sustain. The government cannot crack the whip on Kingfisher because of an overfed white elephant in its own backyard: Air India. The state-owned airline has been in crisis since 2008, thanks to a falling market share and huge aircraft orders. Air India hasn’t made a profit since the merger of its domestic and international businesses in 2007 — and its cumulative losses of Rs 20,000 crore and bank debt of Rs 43,000 crore dwarf Kingfisher’s. By any yardstick – one of the world’s worst employee-to-aircraft ratios and an appalling safety record – Air India is ripe for closure. Yet, government after government bows before its multiple powerful unions and pours taxpayer money into keeping its 43,000 employees in business. Since 2008, the government has funnelled Rs 3,200 crore into the company; Budget 2012-13 adds Rs 4,000 crore. This infusion of taxpayers’ capital enables Air India to cut fares — which, in turn, forces private airlines to follow suit, creating a race to the bottom that has turned one of the world’s fastest-growing markets into a trap for bankruptcy. The government cannot invite foreign direct investment by airlines into the business because no one will buy Air India. That is why Mr Mallya will continue to get an undeserved break for gross mismanagement, while well-managed airlines will suffer the consequences of a giant public sector folly.