What happened to the Jet in India?

While India rejoiced the free market economy in 1991, Jet Airways, India’s once glorified airline set foot on 5th May 1993 and received the scheduled airline status in 1995. This company instantly went public on 1st of July, 1996 then turned private in 2001 and then again public in 2004. In the following years, it made ties with South African Airways, signed pacts with Gulf Air and went about winning awards. Then came 2008, when the company had to go into an alliance with Kingfisher Airlines. Both of these airlines were financially suffering from a crisis due to the globally increased fuel prices, which serves as one of the major expenditures in the aviation industry. It was evident that they were going to let go off a huge number of staffs and so they did. Jet Airways layoff 800 probationary staffs and went on to announce another layoff comprising of 1,100 staffs in October of the same year. The entire industry was hit with a shock and the corporate cries began with pleads made to the government to bail the company out. This was followed by evident protests and under the ensuing pressure, the company had to hire back the staff. Naresh Goyal, the CEO, informed the media that he couldn’t bear the tears in the eyes of the staff laid off and had hired them back as his own daughter was 19 years old and he could imagine what the similarly aged employees were going through during this tragedy and as the father of the family (read empire), he decided to hire his staff back but didn’t do so initially, under political pressure. It was speculated that Jet Airways suffered a net loss of Rs. 700 crore during that time. The merger with Kingfisher suggested that the airline was trying to survive and to cut costs it went ahead with the layoff, just like any other merger. Coming back to present days, you can certainly witness a déjà-vu with a few exceptions. Kingfisher had already stopped operating, Star Alliance closed its door already shut to Jet Airways, no ways of any more mergers could save it from its Rs. 8000 crore debt, none of the banks stretched their arms out to provide Rs. 400 crore as emergency funds and then Jet Airways started taking its last breath. This was again followed by protest of employees. They started joining protests demanding the government to bail out the company with taxpayer’s money. Going back to 2008, Air India suffered a whopping loss of Rs. 2, 144 crores and decided to ask 15,000 of its staff in non-operational areas to go on a 2-3 year leave without pay. To stay afloat, after the 2008 crash, Jet Airways went into a codeshare agreement in June 2008. Presently, Etihad has a current standing stake of 24% in Jet Airways, which it plans to sell to SBI. Jet Airways and its private allies were saved by merger after merger with cries for the bailout in every crisis and the Indian Airlines and Air India kept suffering. This is a similar pattern witnessed worldwide and not just limited to India.

Wow Air, an Icelandic airline company recently shut down due to a similar crisis, in which they had a standing debt of 22 billion ISK and needed 300 billion ISK to stay afloat. There were only two Icelandic airlines, one being Icelandair and the other Wow Air. This airline founded back in 2011, suffered from heavy blows due to rising aviation fuel prices and maintained close ties with a credit card company, Korta that was going through a crisis of its own for Monarch Airline going bankrupt.  Band-aid methods were also used for this airline, just like the mergers we have seen in the case of Jet Airways, but it all, in the end, was a failure.

Internationally speaking…

IATA, International Air Transport Association, founded in 1945 serves as a trade association for all airlines worldwide. They serve as the representatives of airlines consisting of 82% of air traffic. This association provides annual reports on the aviation industry worldwide and their performance based on regions. IATA has been promoting its agendas for private airlines to operate with full freedom in India. It has repeatedly been asking for reforms to liberalize the aviation market further in the country and hawking its agendas for deregulation from the government in terms of legislating flexible laws for widespread privatization of the airlines and reducing taxes to deal with the rising aviation fuel cost which makes up 34% of the operating costs of airlines in India in comparison to a global average of 24%. It has also suggested the addition of domestic jet fuel to the GST framework, wherein full input tax credit is to be allowed among many other reforms to deal with the fuel price rise in favour of the corporate airlines to keep the market afloat. Back in 2008, it reported that with record high fuel prices as well as aviation fuel prices leading up to $140 per barrel with the OPEC, the Organization of the Petroleum Countries tightly gripping the supply thereby increasing the oil prices. This was followed with a huge number of layoffs in the aviation industry with Boeing, one of the biggest manufacturers laying off 4,500 employees initially and resulting in 10,000 ultimately, Cessna cutting off 2000, Delta Airlines sending 2000 employees in to early retirement, Cessna Aircraft planning to layoff 4,600 by April and this was just for the month of January, 2009. IATA then went on to admit in 2009, that the losses incurred were higher than estimated previously and even with the lowering of fuel prices, the condition was so grim, it sent the industry in an intensive care unit. This followed suit in 2010 and brought further layoff of 11,304 from Boeing and 2, 485 from Delta Airlines. With the sky-rocketing fuel price, which is one of the biggest driving forces of the total expenditure cost in the aviation industry, it is likely to suffer another severe blow, slowly but surely. Currently, with the tension going on in the middle-east, Venezuela’s decreasing production, USA and China’s scuffle, Trump’s brand new ways of squeezing Iran, OPEC, the cartel with big players like Saudi Arabia, Russia etc., is looking forward to tightening its grip again. This is likely to be followed by a similar price rise as witnessed historically, back in 2008. If such condition persists, which is highly likely with the fight of the world giants over oil, the aviation industry will suffer again.

What did the government do?

Corporate cries from the airline companies and IATA seems to have finally reached the Indian government and it is on its way to do away with the limit of 49% FDI in the aviation industry and hike it up to help airline businesses survive. This is how the government plans to bring more foreign investment in the industry. With companies going bankrupt and thousands of employees losing their jobs, the investment seems to be the common solution for all, which the government claims would solve the existing crisis and bring more employment. However, the general global economic trend is that, with increasing investment of top 500 companies in the US, UK, Europe, Japan and elsewhere the employment decreases with increasing investment [For further reading: http://jabardakhal.in/english/the-empire-of-large-capital/]. How more FDI will help increase employment and bring back stability to the aviation sector is still a question unanswered, as the claim itself of more investment resulting in the stabilized market and improved employment doesn’t have strong research backup and is a mere assumption in the face of facts. What the government has done meanwhile is that it has opened up the Indian aviation industry for more FDI with flexible scopes for private airline companies to run their business here. But such relaxing norms for the corporate would not benefit the unemployed section in the industry who have lost their jobs or open up opportunities for newcomers seeking jobs in this industry.

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