The Hindu Business Line : Low-down on the aviation meltdown

The financial crisis is leading to a global economic meltdown. This is definitely going to have its impact on the domestic aviation industry as well. Media reports say that the Federation of Indian Airlines (FIA) has asked for a Rs 5,000-crore interest-free loan from the Government to tide over the current crisis. This is in addition to many other fiscal sops and an easing of the regulatory measures.

Is the global meltdown reason for the decline of the aviation sector or is it a case of gross mismanagement? Should public money be used to fund an inefficient and mismanaged industry?

The US government doled out billions of dollars to AIG and the $700-billion bailout to the banking industry has stirred a hornet’s nest. A few days after the AIG handout, its senior executives had a five-day extravaganza at a resort. The top honchos in the banks, with their million dollar bonuses and their fleet of luxury cars and aircraft, are not doing themselves or the economy any good with this kind of attitude.

‘Ego’ trip

The Indian aviation industry suffers from a similar virus. The writing was on the wall two years back. I had pointed out that the industry was heading for a 1990s-type situation (The Hindu Survey of Indian Industry 2007) with over-reaching plans bereft of logic.

The Director-General of Civil Aviation (DGCA has been throwing the rulebook out of the window at every opportunity. A regulator is appointed to oversee safe operations and grant permits or licences after satisfying himself that an airline is viable. To start with, the DGCA regulation on grant of permit to start an airline is flawed. A potential airline operator has to submit a list of qualified personnel to satisfy the DGCA. The regulator is satisfied when the list contains three sets of pilots per aircraft though the minimum required to comply with the flight and duty time limitations is five. Permits are granted without even having the basic infrastructure in place.

Taking off

Airlines announced orders for hundreds of aircraft without having the minimum number of qualified personnel. And tickets were sold at throwaway prices to attract passengers. Yield was not the criteria, but the ego factor of having the highest load factor took precedence.

The promoters of the airlines were not the losers, though. When the demand was high, orders were placed for a large number of aircraft at favourable prices. The manufacturers, also on an ego trip, obliged to show larger sales than their competitors. The promoters then sold the aircraft at a premium to leasing companies only to lease the aircraft back. They had already made their millions.

The Ministry announces inflated growth figures, and grandiose plans are made for airports and airlines. The share market booms and the value of the airline shares are artificially inflated.

Who are the losers?

When the bubble burst, who were the losers? Not the promoters or owners but the gullible shareholders. Airline shares have dived 70-90 per cent of their launch value. The rupee, in turn, has depreciated by 20 per cent. The airlines knew that the major cost is fuel and pilot salaries. But each airline kept adding flights and issuing low-fare tickets, operating with a single point programme — of carrying on until the weaker one falls.

The Ministry and the DGCA were silent spectators. Not one operator felt it necessary to scale down aircraft orders or the operations when the going got tough. Worldwide, bigger operators took this step immediately. Older aircraft, the fuel-guzzlers, were mothballed. Not so in India.

When oil prices hit $145 a barrel, the airlines increased the fuel surcharge. Oil prices have since dropped to around $80/barrel, but the benefit is not being passed on to the passengers. The Ministry is silent on this. Greed and lack of concern have driven the passengers away. Scheduled airlines are not permitted to cancel flights based on loads.

Today, all of them are guilty. They cancel a flight and combine the load with another flight. The term they use is “rescheduling”. Recently, British Airways offered VRS to senior management staff, to cut costs; 500 have opted to leave. Our national carriers are overstaffed and the merger is still a mystery. .

Foreign management

Mahatma Gandhi won us Independence from foreign occupation, but unfortunately airlines in India felt they needed foreigners to teach them how to run the business. The economies of the West are in a tailspin, and the so-called experts from the region have taken our airlines on a similar path. One cannot, therefore, solely blame the airline owners.

Also, with regard to our national carriers, experts from the IAS, who have been deciding civil aviation policy, have kept Air India and Indian Airlines afloat only with government help.

The performance of these experts may have convinced the promoters that Indians were not capable of good management. It is a pity that they did not take a leaf out of the Tatas’ experience or tap the strengths of companies such as Infosys, which are profitably run using the services of the the domestic workforce.

For years, political interference and manipulation have virtually ruined Indian Airlines and Air India, allowing in the process private carriers to grow at their expense. Let the national carriers be run by experts and not bureaucrats who have little clue about the airline business.

The airlines are sitting on multi-crore worth of real estate, the proceeds of which can be used to rejuvenate them.

Indian aviation needs professionalism. Bailing out a mismanaged industry which caters to the upper strata of society using taxpayers’ money is not the right way to go.

(The author is an airline captain with 35 years flying experience. blfeedback@thehindu.co.in)