Liquor baron Vijay Mallya is on a collision course with regulators after his airline, Kingfisher, began grounding flights in the wake of piling up debts of Rs 7,000 crore. Kingfisher Airlines immediately needs Rs 2,500 crore to keep it flying. Mr Mallya's predicament is not unique. Indian airlines are expected to lose Rs 12,500 crore in the year to March 2012. The State-owned Air India is poised to lose nearly Rs 8000-10,0000 crore this year, has been paying salaries late, was on the verge of defaulting on aircraft loans, and is snowed under Rs 42,570 crore of accumulated debt. A company with Rs 2,145 crore equity has dug itself into a Rs 100,000 crore hole in debts and losses. Jet Airways, the other full service national airline, has sacked 1,900 employees and reinstated them a day later and has on occasion threatened to stop operations if taxes on jet fuel are not lowered.
At the heart of the recurrent contretemps lies a business plan gone horribly wrong. Indian airlines have in the recent past been on a reckless shopping spree for aircraft that are flying emp-ty now. Private airlines have a point when they complain that taxes on fuel and airport fees bump up the cost of flying in India by 60%. Alongside a policy that did not allow foreign airlines to buy into Indian carriers, this exerts an enormous cash squeeze. Of late the government is bestirring itself, taking up aviation reforms piecemeal. Airlines flying abroad can now import cheaper fuel, but the logistics are daunting. Bilateral route agreements with other countries are open to private Indian carriers. And there are indications of a rethink on the ban on foreign airlines buying into local ones.
Airlines anywhere in the world are highly susceptible to business cycles. Ours, most of which did not exist a decade ago, are more so. Indian aviation faces challenges from a deteriorating external environment as well as the teething problems of a young industry. The Rs 2,500 crore losses they will pile up in 20011-12 amo-unts to a major chunk of the money that will go down the tube for the industry worldwide. Huge for a country that flies less than 5% of the global air traffic. The largest stakeholder in all aspects of the aviation business, the Indian State, needs to ensure that it remains a going proposition. The government must get out of the airline business, set up an independent regulator to ensure competition, and go back to the drawing board for an aviation policy that make flying planes in this country a less hazardous business. The country's last aviation policy was drafted in 1993, the capital and infrastructure needs of the industry have multiplied since then. The initial burst of aviation reforms in 2004-07 has run its course; the red ink on the airlines' balance sheets should serve as a cry for more.