Three men and a mascot. They mark the glorious period of Indian aviation. They are also the very symbols of its downfall. The last decade saw the rise of privately-owned worldclass Indian carriers, only to see them going down. What we have now is one more sunrise sector on the verge of going bust.
What went so terribly wrong? Are adverse economic headwinds, high debts and faulty business models to be blamed for this decline, or is there more to it? Have policies been twisted to suit corporate interests? Has the government regulatory framework given into corporate demands? The answers perhaps lie in the way these stories tell themselves.
First, the three men.
Man 1. Considered the pioneer of modern civil aviation in India, Jet Airways Chairman Naresh Goyalâ€™s story is awe-inspiring. Starting as an accountant in his uncleâ€™s travel agency, Goyal rose to become the owner of what is today the biggest fleet of privately-owned aircraft in the country.
Jet Airways arrived in 1991 when the government announced its open skies policy, paving the way for private players into the aviation sector and, therefore, more competition. The then aviation minister Madhavrao Scindia too urged private airlines to expand their fleet during the strike called by Indian Airlines to oppose the governmentâ€™s policy.
Many companies threw their hat in the ring. Headlines plastered across newspapers announced this exciting new development with photographs of shiny planes, airhostesses in short skirts and whiskey with breakfast on sunrise flights. But the bubble burst soon.
Pervez Damania, a rich poultry farmer from Mumbai, got a licence for an air taxi between Mumbai, Delhi, Goa and other cities. Within a year, Damania Airways had overspent and was finding it hard to get funds. The airline was eventually sold to NEPC India Ltd and died a natural death.
In another case, East-West Airlines, which received its air taxi licence along with Damania Airways, failed to meet payments. In 1995, Managing Director Thakiyudeen Abdul Wahid was shot dead by members of the dreaded Chhota Rajan gang. Unable to pay back the cost of the Boeings it had hurriedly acquired, East- West too had to shut shop in 1996.
Now, consider Jetâ€™s arrival against this background and you canâ€™t help but feel admiration for Goyal. But did Jet Airways owe its survival â€” and subsequent success â€” to other factors too? According to an aviation expert who sits on the boards of several prestigious firms, â€śJet wanted policy to suit them. The routes, the capacity, the policy, all regulatory allowances from the Directorate General of Civil Aviation (DGCA) only favoured them.â€ť
In an interview to CNN in 2005, talking on the need for lobbying, Goyal had admitted to the importance of being in close proximity with decision-makers. â€śI think in the US, people know how to deal with senators in Washington,â€ť he said, â€śpeople in Boeing know, IBM knows, everybody knows. In England, people know. So it is nothing shrewd. You have to understand your system.â€ť
Goyal understood the system well. â€śYou had to be stupid not to succeed when you controlled the market and the scarce resources,â€ť says Captain Gopinath, founder, Air Deccan. He points out that in India, to survive and do well in a regulated environment â€śone needed a few attributes, especially in the licence raj, including the ability to work with, and often manipulate, the government and be quick in accessing capitalâ€ť.
Now, with the controversy raging around the Jet-Etihad deal, questions are being raised around this very ability of Goyal. The Rs 2,000 crore deal, where Jet sold 24 percent stake to the UAE-based Etihad Airways, has become the latest flashpoint in the troubled aviation sector. The deal gave Etihad a majority stake in Jet Airwaysâ€™ frequent flyer programme, Jet Privilege, and Rs 378 crore towards three pairs of slots at Londonâ€™s Heathrow Airport through a sale and lease-back agreement.
Jet also received a $300 million five-year loan at a very low interest rate. But what raised eyebrows was the bilateral decision that was taken to raise the weekly air seat capacity between India and UAE to almost four times from about 13,000 to 37,000. The government liberalised the weekly seat quota to facilitate this deal, signalling to the aviation sector that India-Abu Dhabi promises to be one of the busiest air routes.
And therein lies the rub. Although other airlines could tap into the sector, it will not be as lucrative for them as Etihad, which has Abu Dhabi as its hub and will be able to offer lower fares, effectively eliminating all competition.
From a policy standpoint too, the deal came under scrutiny after the Prime Ministerâ€™s Office (PMO) was dragged into it over the timing of the bilateral agreement, and importantly, for being skewed in the UAE’s favour. Goyal had met civil aviation ministry officials, including the aviation secretary in March in this connection. â€śThis deal is a manifestation of all that has been wrong with the aviation sector in India,â€ť says Jitendra Bhargava, former spokesperson of Air India.
That aviation big-timers have always had the ear of the power corridors is not new. But much more has gone wrong with the industry. High costs of operations, expensive parking and landing rights, high prices of air turbine fuel, almost no quality maintenance facilities (so much so that Indian carriers had to send their planes to Dubai for servicing) and high taxes have all led the sector to the mess it is in today.
BJP leader and former aviation minister Rajiv Pratap Rudy sums up the current scenario. â€śIndian policymaking has always been more focussed on individual airlines than the sector,â€ť he says. â€śVijay Mallyaâ€™s aviation model was faulty from the start, Sahara did not have the correct approach and made (Naresh) Goyal almost pay a ransom of Rs 2,000 crore when he bought the airline.â€ť
Even as other players like Indigo, GoAir and SpiceJet seem to be benefiting from relatively leaner operating models â€” no-frills flying without free meals or blankets â€” they too admit the sector needs an overhaul for them to service customers competitively for a long term. The reason Indians can now carry only 15 kilos baggage and no more has a lot to do with the high operating costs mounting on their balance sheets.
How did things come to such a head and when? A large part of the blame would go to retrograde policies and extra costs. A banker familiar with the aviation sector says that â€śmost airlines in India have often forgotten who makes up their market. Itâ€™s those migrating from buses and trains. Indigo, SpiceJet and other budget carriers have come and proved this to Jet and Kingfisher, who became victims of sexy marketingâ€ť.
Man 2. While Goyal and Jet continue to fascinate, the Kingfisher Airlines story makes for one of the most depressing reads. â€śI can see why some would call Vijay Mallya a pariah,â€ť says Saj Ahmed of Strategic Aero Research, â€świth employees going for months without pay at Kingfisher, now a grounded and all but dead airline. Away from the bravado of air shows and big orders that will never be realised, Kingfisher has no one else to blame but itself for its failure. The idea was novel, but the execution was nothing more than a vanity exercise gone horribly wrong.â€ť