The recent diktat from the ministry of Civil Aviation to public sector banks to bail out the beleaguered private airline SpiceJet smacks of crony capitalism the BJP frowned upon during the decade-long UPA regime! The banks are now reluctant to line up credit after their disastrous experience with the bankrupt Kingfisher Airlines, run by the beer baron Vijay Mallya to whom they continued to lend and extend repayment relief under duress. Kingfisher ceased flying in 2012, saddled with the ignominy of leaving billions of rupees in unpaid debts to a slew of creditors, including public sector banks. In the case of SpiceJet, in which media baron Kalanidhi Maran of the Sun Group of Tamil Nadu is a majority shareholder, the airline ran out of cash and revoked hundreds of flights in a day. It has to reportedly pay oil companies and sundry other creditors about Rs3,000 crore. Its net debt stood close to $230 million at the end of September, reports reckon.
Since the billionaire promoter is unwilling to pay from his own coffers, the civil aviation ministry asked banks to pay the carrier upto Rs600 crore in working capital loans “backed by the personal guarantee of the chairman Maran” until the carrier could bag long-term investment. In a statement on December 16, the ministry also permitted SpiceJet to open bookings until March, 2015, relaxing the advance booking limit of one month slapped on December 5 in the light of the carrier’s signs of financial distress detected by the industry regulator, DGCA. It also requested the finance ministry to permit commercial borrowing for working capital as a special dispensation to the troubled airline. All these accommodations are predicated on guarantees from the promoters of the airline and the carrier has been asked to come up with a workable financial plan within two weeks.
Talks are rife that the original promoter of SpiceJet, Ajay Singh, who exited four years ago after reaping his fortunes through stake sale, is now willing to invest along with a few more investors and has met the civil aviation minister and officials. The rescue of the cash-starved carrier is “in the best interests of stakeholders, including passengers.” This meant that the gains the airline cornered before the crisis had gone to it, but when failures supervened — as in this case of a gross dereliction of duty by the inept low-cost airline — the losses are being shouldered by public sector banks. This is yet another instance of taxpayers’ money bailing out a limping airline.
RBI governor Raghuram Rajan has recently railed against “uneven sharing of risk and returns in enterprise where promoters have a class of ‘super equity’ which retains all the upside in good times and very little of the downside in bad times, while creditors, typically public sector banks, hold ‘junior’ debt and get none of the fat returns in good times while absorbing much of the losses in bad times”. In the third Kurien Memorial lecture on November 25, Rajan conceded that the present value of what the bank can hope to recover is ‘a pittance’. This, he deplored, “skews bargaining power towards the borrower who can hire the finest legal brains to work for him in repeated appeals, or the large borrower who has the influence to obtain stays from local courts”. The ruling dispensation must desist from propping up loss-making high-flyers at public cost.
The author is a New Delhi-based journalist