Betting on revival of Jet

Indian civil aviation sector, one of the fastest growing in the world, witnessed a key development on Monday when Naresh Goyal, promoter of Jet Airways, quit the airline and allowed bankers to take control of it.

Goyal, who started as a travel agent, went on to promote Jet Airways, a full-service airline, in 1993 with just two aircraft. Before it ran into current crisis, the airline was operating 119 aircraft.

But as many as 77 of them are grounded now- a stark reality of the deep chaos the airline is in. Pilots also threatened to go on strike, demanding immediate payment of salaries.

As the airline is weighed down by a massive debt of over Rs 8,000 crore and promoter has thrown up his hands in bringing in additional funds, the consortium of banks led by State Bank of India (SBI) has stepped in.

It is said that the Modi government played key role in this. Interestingly, Abu Dhabi-based Etihad Airlines which has stake in Jet has not come forward to rescue it. Therefore, banks agreed to infuse Rs 1,500 crore as emergency fund to keep Jet Airways stay afloat.

SBI Chairman Rajnish Kumar already announced that the country's oldest private airline would be put up for auction in a month or two. That way, banks are hoping to recover their dues.

The interesting point however is that promoter Naresh Goyal will be eligible to participate in the auction if he wishes to do so. That decision paves away for the backdoor entry of Goyal if the auction fails to attract buyers.

Nonetheless, the handling of Jet Airways by the current government at the Centre raises a key question. When Kingfisher Airlines, owned flamboyant liquor baron Vijay Mallya, landed in similar situation in 2012, the then UPA government remained a mute spectator and let the airline fall into financial mess.

In this backdrop, the Modi government deserves appreciation. Of course, election angle can't be ruled out. No government can afford the failure of such a large airline when it's on the threshold of testing waters in electoral battle.

But the key aspect here is that Jet Airways would have gone Kingfisher way if the government and bankers have not stepped in. That way, over 20,000 Jet employees and several thousands of people who booked seats on the airline can now heave a huge sigh of relief. That's most important here.

But high taxes on passenger fares, high cost of aircraft, steep prices of jet fuel and high overhead costs like salaries are taking heavy toll on airlines. The adverse impact of these factors is more crippling in the Indian market which is saddled with overcapacity and severe competition.

Airlines need to realign their business strategies in tune with changing times and find ways to reduce steep pay packages for pilots and others.

The government should also reduce taxes on tickets as well as jet fuel as air travel has become a necessity, not a luxury these days. Hope the Jet Airways saga will be a wake-up call for the sector as well as the government.