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Coronavirus impact | Should the government come to the aid of airlines?

There is a case to help them. And there is one, not to.

March 30, 2020 / 01:34 PM IST
 
 
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Addressing the media on March 26, soon after announcing a mega package to help the poor tide over the coronavirus crisis, Finance Minister Nirmala Sitharaman was asked about the government's plans to help the aviation sector.

There was no answer. The finance minister ignored the question.

"Clearly not a priority" is how an aviation industry executive ruefully put it.

A day later, on March 27, the US government announced $50 billion as an aid to the country's airlines in the form of grants and loans. The US government is not alone.

Earlier in March, the Australian government waived charges worth $450 million that airlines in the country had to pay. Similarly, governments in Sweden, New Zealand and Singapore have provided relief to their aviation industries.

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Industry association IATA has warned that, "without immediate government relief measures, there will not be an industry left standing. Airlines (globally) need $200 billion in liquidity support simply to make it through".

So, what is stopping the Indian government from following suit; especially after CEOs of airlines, asked for help to pay salaries? Already, all the airlines, including IndiGo, Air India, SpiceJet and GoAir, have been impacted in varying degrees.

The reasons are many.

The perception

Despite airlines increasingly becoming a preferred mode of transport, it is still regarded as a rich man's indulgence. This is not without reason. While the domestic aviation industry handles about 350 million passengers a year, Indian Railways transports more than 500 million customers in just a month.

It has not helped that with promoters such as Vijay Mallya and Naresh Goyal - both of whom are facing investigations of different kinds - the industry really does not get any brownie points.

Also, the past experience with grants has not been ideal. After the 9/11 crash, American airlines were given billions of dollars in aid but that did not prevent large scale job losses. Union leaders alleged that the money did not reach the worker on the ground.

So, there could be good reasons for the government to push aviation down the priority list when it comes to a rescue package. Not to talk about the money it will need to infuse into Air India and keep the national airline flying, with the disinvestment process most likely delayed.

The case

At the same time, there is also a case to help the airlines.

It is a growing industry. As IATA Director General Alexandre De Juniac pointed out in his letter to Prime Minister Narendra Modi, the industry employs about six million and contributes to 1.5 percent of the GDP. The current disruption due to COVID-19 could lead to over 5.5 lakh people losing their jobs.

Not just that. A robust aviation industry is imperative to move cargo and people within the country and internationally. A disruption in this network will slow down other sectors.

The solution

So, how can the Indian government give aid to the airlines and also ensure that the grant reaches down to most junior employees?

Like in the US, where the government gave part of the aid on the condition that there will not be any furlough or pay cuts, the Indian administration can also do the same.

Also, the aid can be in the form of loans that need to be repaid within a stipulated period of time. Probably, the Reserve Bank of India (RBI), has already enabled the banks to lend cheap loans through the measures it announced on March 27.

Do the airlines warrant zero-interest loans?

Help can also come in other ways, including a waiver or cut in charges that airlines have to pay. The government, though, will have to keep in mind the needs of airports which have also asked for help. A huge cut or waiver on charges that airlines pay to the airport can lead to the latter taking up arms.

The fine balance would be to help the industry and at the same time, make them accountable for the aid.
Prince Mathews Thomas heads the corporate bureau of Moneycontrol. He has been covering the business world for 16 years, having worked in The Hindu Business Line, Forbes India, Dow Jones Newswires, The Economic Times, Business Standard and The Week. A Chevening scholar, Prince has also authored The Consolidators, a book on second generation entrepreneurs.
first published: Mar 30, 2020 01:34 pm

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