The recent decision of consortium of lenders led by the State Bank of India to infuse Rs 1,500 crore into troubled private sector airline Jet Airways should not be seen as an end to a problem. Rather, it seems that this is going to be a long and painful journey for anyone getting involved in the process of saving the airline.
Now that the founder chairman of the airline, Naresh Goyal, has stepped down, the first challenge for the lenders is to find a strategic investor for the company. It will be a herculean task to find an investor for debt-saddled airline like Jet Airways.
Moreover, airlines have always found it difficult to make money in India. Any prospective investor is bound to be really cautious before he takes a final decision on this matter.
Bear also in mind that world renowned investment guru, Warren Buffett, had many years ago said that airlines are bad investment because they almost always find it tough to make money.
On one hand, airlines have to invest a lot of money in planes, safety, operations, maintenance and etc. But, on the other hand, they also have to ensure that air travel doesn’t become too expensive for the people.
Walking that fine line is really tough. Experts believe that Jet’s problems owe a lot to pricing war started by other airlines like SpiceJet and IndiGo. Often, air tickets on certain routes are at par with 2nd AC fare of Indian Railways.
How will the revived Jet Airways (assuming that it gets a potential investor) deal with this challenge? The bigger question to ask is about the role of the Central Government in this saga. If the government is fine with PSU lenders like SBI saving Jet Airways, what will be its strategy in future if another airline gets into a similar situation?
Shouldn’t the government be letting businessmen take care of their business? But, it is not so simple. The failure of airlines as a sector could be detrimental to the whole economy. Then, there is a question of thousands of jobs, which depend directly or indirectly upon the future of Jet Airways.
Somewhere the government will also have to consider the fact that the Indian aviation sector is hardly a fraction of the Chinese aviation sector. If India and China are comparable economies, why is this the case?
How will the so-called potential of Indian aviation sector be tapped if airline after airline keeps on failing? What will happen to the aspirations of a rising middle class population if airline sector remains in limbo?
These are relevant questions for the government to keep
in mind. But, in the short run, SBI and other lenders will
somehow have to navigate through rough waters to stabilise
Jet Airways.
