Will the GoM newly constituted by the Prime Minister be able to push through an uniform sales tax applicable across the length and breadth of the country—besides other reforms? A lot depends on it succeeding.

On hindsight, was the Federation of Indian Airlines’ scuttled strike on August 18 a serious threat or was it merely to test the waters insofar as the Indian government’s willingness to bail them out of the current financial morass. But if the consortium of private airlines comprising Kingfisher, Jet Airways, IndiGo, SpiceJet and GoAir imagined the government would prescribe the same treatment as was being contemplated for the ailing national carrier, Air India, it was in for a rude shock. The whole exercise fizzled out due not only to the tough stance taken by Ministry of Civil Aviation (MOCA) but also to internal fissures within the federation. Confronted with the government’s tough talk, low-cost carriers IndiGo and GoAir developed cold feet and decided to pull out from the strike. SpiceJet, which had registered profit in the previous quarter, also opted out for good reason. That left a highly fragmented federation which, finally, got its act together to at least have a face-saving meeting with Civil Aviation Minister Praful Patel.

Though there was no official word on what transpired at the meeting, Kingfisher Chairman Dr Vijay Mallya later told reporters: “Both the Civil Aviation Minister and the Secretary (Civil Aviation Secretary M.M. Nambiar) were sympathetic to our demands. Our discussions were held in a positive and constructive manner. I hope that the government will look at our difficulties and something will come out in four to six weeks.” Subsequently, Praful Patel, the second time Minister of Civil Aviation in the re-elected UPA government, made a detailed presentation before the Union Cabinet and had a Group of Ministers (GoM) constituted by Prime Minister Manmohan Singh to look into the woes of the civil aviation industry.

Patel, however, remains optimistic about Indian aviation industry’s future prospects. He is convinced that the $14-billion (Rs 68,675 crore) industry will grow at around 8.5 per cent annually over the next five years, notwithstanding the fact that it logged a decline of 4.7 per cent last year. “India’s per capita number of trips is 0.02, compared to 0.1 for even the most populated China (five times higher) and 2.2 trips for the US. So there is huge potential in our country,” he argues. “India’s population in million per aircraft—an interesting piece of statistics—is 2.89,” he says, emphasising the corresponding figure is 1.14 for China, 0.63 for Brazil, 0.31 for South Africa, 0.24 for Japan, 0.11 for Germany, 0.07 for Britain and 0.05 for the US. “This shows huge potential to increase aircraft penetration in the country, even when compared to other Asian countries,” he said.

The credibility of the minister’s claims is indubitable, but ground realities belie such claims. For instance, it would be pointless at this stage to compare India’s per capita ‘aviation’ statistics considering 25 to 30 per cent of its population still finds itself ‘below the poverty line’ (living on less than a dollar a day). While there’s no denying or downplaying civil aviation’s robust growth of 46.4 per cent in 2006 and 32.6 per cent in 2007 in India, the hope that it would continue at similar rates is nothing short of misplaced optimism. The net result is that most airlines’ plans and business models have gone hopelessly awry. The backlash has been so severe as to push practically all of them into deep financial quagmires.

Top of the heap is Air India. More than living up to its distorted image of the Maharaja-turned-White Elephant, the national carrier has notched up a staggering loss bordering on $2 billion (Rs 10,000 crore). It is of little comfort that the cumulative losses of the private airlines also amount to a similar $2 billion. After all, while the government will go the extra mile or two to bailout a symbol of the nation’s proud lineage, even if it is for the umpteenth time, it cannot possibly extend the same largesse to private airlines. So, what ails India’s private airlines and, left to fend for themselves, what should they be doing to come out of the red?

Though debatable, it is alleged that in India airport charges are highest in the world and Aviation Turbine Fuel (ATF) is priced at 50 per cent higher than international levels owing to a combination of high central and state taxes as also inefficiency of the oil refining and marketing companies. As fuel constitutes high percentage of operating costs, which itself is linked to the fluctuating international oil prices, the adverse impact of rising prices and high taxes can easily lead to an uncontrollable situation. While the airlines tried to come out of the financial jam by passing it on to the air traveller in the form of fuel surcharge, a catch-22 like situation soon emerged with the latter resorting to other forms of cheaper travel, leaving the airlines once again in a financial lurch.

Financial woes apart, the airlines are partly to blame for the current quagmire. Many of them often adopted business models quite out of sync with the needs of the time. Instead of a calibrated and controlled growth strategy, airlines indulged in unbridled and unmindful expansion (who ever heard of a single airline ordering more than a hundred aircraft in one go, at the start up stage itself). This coupled with employing large numbers of prohibitively expensive expatriate flight crews, overstaffing and placing undue reliance on foreign expertise in top levels of management (whose incentives lay more in shortterm personal financial gratification than longterm and lasting interests of the enterprises they led) created more problems than solved. Inadequate infrastructure and archaic Air Traffic Management further escalated operating costs.