The economy can’t sustain a full-service airline, but no banker acted in time; Jet’s staffers never looked for jobs either.
Even in late 2017, ratings agency CRISIL had sounded a warning on the aviation industry, pointing out that rising fuel prices could hurt airlines. Even otherwise, it has become evident over the last few years that the country simply does not have enough purchasing power to be able to sustain full-service carriers; in fact, there have been quarters in which even the well-run no-frills airline Indigo has posted losses. Which is why, it is surprising the banks were not more alert about their exposure to Jet Airways and didn’t push the management to pull up its socks. They did in the end and, whatever the reason, whether the fear of the 3Cs—CVC, CBI and CAG—or of losing more money, it was a good decision to not pump in more money; and the government did well to not pressurise PSU banks to do so.
To be sure, the value of Jet Airways falls further every day that it does not fly, but it is not going to be easy to get any buyer to cough up much money for the airline. A newly-licenced carrier can easily pick up slots and bays, there are enough planes to be leased, and more than enough pilots to fly them. To be sure, Jet has international slots and alliances, but paying off `15,000 crore of loans—or half of it if bankers take a 50% haircut—and taking on 22,000 employees may not be worth it for most investors.
There are lots of lessons to be learnt from the closure of Jet Airways. First, bankers need to be far more vigilant about their loans and strict with their borrowers. Employees, for their part, need to be far less demanding. While it is unfortunate that so many people have lost their jobs—not just those with Jet, but in other companies that have been wound up—the unions and officers’ associations must accept some of the responsibility since their demands are often unreasonable and their rigid stance, on salaries and increments for example, have been a contributing factor to businesses getting destroyed.
Unions in the government sector, of course, get away with virtually anything since the hapless taxpayer is there to foot all bills. Salaries in state-owned banks, for instance, are re-negotiated upwards without any commensurate commitment to an increase in productivity. Employees in public sector enterprises, such as Air India and BSNL, have taken it for granted that the government will continue to support these businesses even if they are loss-making and unviable. One reason why there were no takers for Air India—and there may never be—is because the government would not allow employees to be laid off, nor was it willing to write off most of the debt. Indeed, going by the reported offers for Jet Airways—buyers are understood to have asked for an 80% haircut on the loans—the government should be grateful if some buyer even agrees to run Air India without paying a penny and with even half its employees. The carrier may become viable if it is run very efficiently. This way, it can ensure there is enough flying capacity and protect thousands of jobs as well. There are those who will argue that the government itself can run the carrier if it can pare the workforce by 50%, but when an enterprise is owned by the government, there is always the pressure to interfere in the operations and to recruit more people; also, thanks to PSUs being considered an ‘instrumentality of state’, decision-making tends to be more sluggish even if the government has a completely hands-off policy and allows professionals to run the company. Handing over Air India to a private sector entrepreneur—easier said than done, and unlikely in the near future—will keep the airline going without constantly burdening the taxpayer.