India's troubled skies

Need to beef up regulation of the aviation sector

It is unfortunate that, even as Indian air travel is growing by leaps and bounds, the civil aviation sector seems to be in a mess commercially. The latest news concerns one of India’s oldest private sector operators, Jet Airways, which is also the leading full-service operator in India. It has been reported that Jet Airways has defaulted on payments to the entities from which it leases its aircraft — it has 108 aircraft on lease, the vast majority of its fleet. It is also behindhand on payments to the Airports Authority of India. The airline insists that it will settle all its dues, but there is clearly some uncertainty about the company’s financial sustainability. Jet is reported to be approaching several possible investors, including the Tata group, which has a presence in the sector through Vistara, which it operates in cooperation with Singapore Airlines, as well as Air Asia. It is doubtful whether Abu Dhabi’s Etihad Airways, a major investor in Jet at present, will be able to infuse more capital, given that it itself is running at a loss, and there are murmurs about a possible merger with Dubai’s Emirates Airlines in order to salvage the former.

It is a familiar sight that whenever crude oil prices rise the Indian civil aviation industry is thrown into crisis. And it is also true that airlines are a difficult business, and even world-famous names are prone to insolvency. Yet the Indian aviation sector’s ills are greater than they need to be, given the explosive growth in traffic. In fact, it reflects a series of missteps by both the private sector and the government over the past decade and more. Governments across decades and party lines have simply not allowed market forces full play in the business. They have given in to lobbying where they should not have, and ignored industry pleas at other times, lending a whiff of arbitrariness to regulation. Jet Airways itself has been a prominent beneficiary in the past of government action. Famously, the government allowed for many more berths between India and the hubs of Abu Dhabi and Dubai in the past — which benefited not just the big Gulf airlines but also Jet, which, as part of the Etihad family, became an integral part of the Abu Dhabi hub. Meanwhile, the government denied now-defunct Kingfisher the right to stop and refuel at a Gulf airport, which would have reduced its fuel bill, because it wanted to protect the revenues of state-controlled oil-marketing companies. 

There are important steps the government must take if it wishes to ensure a sustainable and profitable civil aviation sector. The first, of course, is to end subsidies to Air India even as efforts to privatise it should be revived instead of mindlessly using taxpayers’ money to keep it running at a loss. The state-owned airline, although it has lost passenger share, continues to distort the sector because it faces the soft budget constraints of the public sector while all its competitors must raise money in the open market. Most importantly, it is clear that the Directorate General of Civil Aviation, or DGCA, has been compromised by excessive closeness to the powers that be. It must be replaced with a new and genuinely independent regulator. The Airports Economic Regulatory Authority of India can serve as a good example in this regard.