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Fly over the cuckoo's nest

GoI shouldn’t bail out Kingfisher Airlines but look at what led to such a situation

india Updated: Nov 16, 2011 23:18 IST

The government would be well advised to let Vijay Mallya leverage the enormous clout of his liquor business to ride out the storm his airline seems to have flown into. On principle, taxpayer-funded lifelines to companies must be avoided unless there is compelling evidence that an entire industry is distressed. That is not the case yet in Indian aviation. Mr Mallya’s competitors, particularly the budget airlines are getting by, and the only other SOS is from the government-owned Air India, which has been weaned on a steady diet of prodigious public funds since its nationalisation. If Kingfisher Airlines’ business plan is fundamentally sound, its creditors must be allowed to take a call purely on commercial considerations. Political influence on State-owned banks to extend the airline’s credit runs the risk of shifting a bad penny from one pocket to the other. This must be avoided at all costs.

That said, Mr Mallya has some persuasive arguments. India’s airline industry is not exactly in the pink of health. Most airlines are flying into the red, and not because they are as mismanaged as the Maharaja. Indian taxes on jet fuel make for wafer-thin profit margins, and that too only for low-cost airlines. Aviation infrastructure doesn’t come cheap either and this squeezes carriers some more. You need deep pockets to run an airline in the country. If Mr Mallya is hurting, there is a case for opening up the airline industry to foreign players that have the staying power — and a line to cheap credit — that could put Indian aviation on a firmer footing. It cannot be in the nation’s interest that the only form of viable flying is the no-frills variety.

Airline misery is a worldwide phenomenon, a profitable carrier is hard to sight. But a change in the level of despair serves as an early warning system for a wider economic malaise. Business travel is an airline’s main course. When that shrinks, governments need to take notice. A policy of deliberately slowing down the Indian economy is adding to Mr Mallya’s woes. He is not alone. The pain is being felt across industry, which has been imploring North Block and Mint Road to ease up on interest rate tightening. The UPA government can’t remain oblivious to the chorus building around the policies it is undertaking and those it is not. Accusations of lethargic decisions tend to stick. The government should not send in the cavalry to Mr Mallya’s assistance. But it should, at the same time, not ignore the circumstances that have led to his predicament.