Cost of inefficiency

Kingfisher Airlines is again in the news with cancellation of flights every day causing serious inconvenience to passengers.

To add to inconvenience, passengers are being fleeced by other airline companies. Only a few of Kingfisher’s 64 aircraft are flying now, as it is unable to find funds for working expenses and a number of pilots have quit. The DGCA sought an explanation from the management but the problems are unlikely to be solved across the table as they go beyond logistics. The banks are unwilling to lend more money to the bleeding airline because they are, in the present circumstances, not sure of any reasonable return.

They are even afraid that they will have to write off the money in future as the future of the company is uncertain. Last year they lowered interest rates on loans and converted part of the Kingfisher debt into equity, which is now only about a third of its original value. They are even now ready to restructure debt if the company management is willing to raise its own funds and come up with a convincing recovery plan. This is not happening.

The government has also tried to help the airline and the aviation sector in general with permission to import jet fuel and relaxing the curbs on international flights. It also proposes to allow foreign equity participation in Indian airline companies.  The entire sector is ailing because of mismanagement, inefficiency and wrong business decisions taken in the past. It is wrong to sustain the industry with the help of public funds and so the government cannot force banks to take commercially bad and unviable decisions.

But it is also true that a major reason for the woes of the aviation sector is the government’s support for Air India which keeps its fares low, making it impossible for private airlines to charge fares which  meet  their costs. Keeping an inefficient  Air India afloat with public money constrains the business freedom of private airlines. If there is fair competition in the sector with an independent regulator to ensure that there is no resort to unfair practices, the sector can be brought back to health.

The reforms in the sector should be part of a new aviation policy. The existing policy is about two decades old and has been overtaken by the vast changes that have since taken place. The focus should be on helping the entire sector rather than a particular airline company.

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