There is no political, economic or even humanitarian logic in the government seeking to bail out SpiceJet, the airline next headed for death row.
Among other things, the Civil Aviation Minister, Ashok Gajapati Raju, has asked public sector banks to give the company working capital loans (of around Rs 600 crore) on the basis of assurances from the promoter, and the public sector oil companies are being asked to give the airline 15 days of credit for fuel, reports Business Standard.
Why, can’t the billionaire Marans, who own the Sun TV Netowork, fork out Rs 600 crore till they find a buyer?
Worse, the ministry has overturned an order of the Director General of Civil Aviation (DGCA), the aviation regulator, that barred SpiceJet from offering bookings beyond 30 days. This is retrograde, for the reason behind the DGCA ban was SpiceJet’s tendency to use long-term ticket sales at low rates to finance short-term cash flow needs. This is like selling your house to finance a meal today. And ministers ought not to, in general, overturn the rulings of so-called independent regulators.
The logic given by the ministry is that this bailout is needed to “tide over the crisis and to keep SpiceJet from shutting down, as it would be a major setback to the Indian civil aviation sector.”
Question: did the management not know it was headed for a financial crisis when everybody and his aunt knew it?
The civil aviation sector has been ruined by wayward government policies and foolish promoters who were busy under-cutting ticket prices endlessly for cash-flows. The aviation sector is not going to be saved by saving SpiceJet, just as the endless bailouts of Kingfisher or Air India did nothing to revive it earlier. Instead, all the bailouts achieved was prevent a quick reappraisal of failed business models and the entry of more robust players like the Tatas.
The SpiceJet bailout is also morally wrong for what the minister is doing is asking banks, already staggering under a huge burden of bad loans, to bail out a cash-rich billionaire’s sagging business.
17/12/14 R Jagannathan/First Biz
