Airlines reaching the NCLT underline a systemic problem that plagues the aviation sector
Something is not right with the domestic aviation sector. Last week, Go First filed for insolvency resolution, blaming the US company Pratt & Whitney for its “faulty engines” which grounded half of Go First’s fleet. Days after that, Aircastle, one of the lessors of SpiceJet, dragged the airline to the National Company Law Tribunal (NCLT). It wants the insolvency process to start against the airline for the non-payment of its dues. The case will be heard today, though SpiceJet is “confident of resolving the matter without court proceedings and we are in discussions with their [Aircastle’s] senior leadership team.” Hopefully, that happens but it is a fact that SpiceJet has been incurring losses since 2018-19. These developments suggest that there is something systemically wrong with the aviation sector. Air traffic is increasing rapidly. In the last decade, the number of domestic passengers has jumped from 14 million to 144 million. The Indian economy has shown considerable resilience and overcome the pandemic blues; it is expected to grow at a rate in the region of 6 per cent in the foreseeable future. The government is spending lakhs of crores of rupees on infrastructure. In such a milieu, it seems incomprehensible that aviation companies are shutting shop. Unfortunately, that has been the story of civil aviation since the opening up of the sector in 1994. In the last 29 years, 27 airlines have died; one aviation company perishing every year is not very assuring.
If the worst comes to the worst and the two airlines, Go First and SpiceJet, are shut down, domestic aviation would be staring at the prospect of duopoly. Indigo is the market leader with a 56 per cent share; the Tatas-owned airlines are distant second with a total market share of 26 per cent. Competition makes a sector vibrant; it is declining in India’s nascent aviation business. The business is plagued with several problems, the one with engines appearing quite high on the list. In fact, it troubled Indigo too, but the company was able to overcome it; Go First couldn’t. It is, however, indisputable that grounded aircraft are a big issue. As per the estimates of CAPA India, an aviation advisory and research body, about 110 planes or 15 per cent of the country’s total fleet is grounded because of various problems. All airlines are facing this challenge—some more, others less. Go First suffered the most; it had to shut down. The high fuel cost is another challenge that Indian airlines face. Then there is the issue of over-regulation. One instance is the Government’s affordable flying scheme UDAN (moniker for Ude Desh Ka Aam Nagrik); it means that airlines have to fly non-lucrative routes. The need of the hour is rethink over aviation policy; it must strike a balance between the financial health of companies on the one hand and revenue generation (fuel tax) and social obligations on the other.