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Rediff.com  » Business » Is Indian aviation heading for disaster?

Is Indian aviation heading for disaster?

By T N Ninan
October 18, 2008 18:06 IST
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Fewer than a thousand people were retrenched across all of India in 2006 - the latest year for which the labour ministry has statistics. Since 2003, there has been no year in which the number crossed 3,000.

In an organised sector that employs 30-40 million people, these are amazing statistics - a retrenchment rate of less than 1 in 10,000, if the statistics can be relied on. The reality could well be that people are laid off without the government getting to know.

But if one assumes that the official numbers are not complete fiction, there is a remarkable degree of job security in India. Jet Airways is therefore an unusual case, when it tries to retrench 1,900 employees in one shot. So perhaps the headlines and the hysteria and the political threats are to be expected - though, to keep perspective, it is good to bear in mind that TCS alone hires more than that number in a month.

Cut to another set of numbers. When Kingfisher Airlines first invested in Deccan Aviation in June last year, prior to their merger, Deccan alone was valued at Rs 600 crore (Rs 6 billion). Today, the merged Kingfisher-Deccan is worth the same Rs 600 crore - because the stock price has tanked by an astonishing 85 per cent in one year. Indeed, the airline loses a sum that is equal to the company's current value every quarter, and that in turn is only a fraction of what it owes to the companies that sell it aviation fuel, and to the airports authority. This is a company that is out of cash and in desperate need of viability.

Jet Airways is doing only a little better. The company's value is Rs 2,236 crore (Rs 22.36 billion), but it has lost 80 per cent of its market capitalisation in the last one year, and is losing the equivalent of its current value in just one year. Like Kingfisher, Jet is not far from going belly up.

Faced with colossal destruction of value, no cash to pay bills, and too many planes in the sky, what do you expect responsible managements to do, other than rationalise business operations and costs? You can - indeed, should - criticise both Naresh Goyal and Vijay Mallya for their ego-driven decisions to expand beyond all logic, and to launch international operations when neither had a profitable domestic base.

So, even if it is rather late in the day for them to be coming to their senses, it is entirely to be welcomed that they are canceling flights, scrapping aircraft orders, and (yes) retrenching staff. If they didn't do that, and both companies folded up, it is not 1,900 but 19,000 people who will be out of work.

Yes, Jet did the retrenchment without grace, and with no thought to common courtesies. So it has on its hands a public relations disaster and, worse, a rollback of the decision after tough talk and threats from Raj Thackeray. Where does that leave the cash-strapped airline, or Kingfisher which too had been preparing lists of people who would be asked to go?

We are in the same situation that Mamata Banerjee created in Singur - because 1,000 out of 12,000 farmers were resisting, all of Singur and West Bengal had to lose. The bankruptcy of her position became obvious when, as soon as Tata left, Ms Banerjee dropped her demand that the land (and only that land, no other!) be returned to the farmers.

Admitting at long last that the land is no longer cultivable since what was to have been a factory stands on it, she now wants the state government to bring another car project to Singur!

If Jet and Kingfisher are not allowed to rationalise their businesses, including staffing, expect the biggest crash ever in Indian aviation.

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T N Ninan
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