 Hello and welcome to Newsclick. Today we are going to discuss the crisis of the jet airways which seems to have gone belly up. We have had thousands of jet employees demonstrating in different parts of the world. The lenders have seized the aircraft, the leasers have taken back the aircraft, very few aircraft now left with the jet airways. To discuss this with us, we have D. Raghunandan who has been watching the aviation industry with us for quite some time. This, is it the larger crisis of the aviation industry, the passenger aircraft industry in the country or is it something which is specific to jet only? I think the answer to that is both. There are problems in the larger civil aviation sector and there are problems created by the specific directions taken by jet airways. So, let me address the larger issues first. India started off its privatization process with a few full service carriers and later opened up to allow a few low cost carriers, mainly Deccan Airways for example and the full service was jet. Compared to the European industry, although we call them low cost carriers, they are really in effect low fare carriers because we do not have separate airports, we do not have separate terminals, the facilities enjoyed by the low fare carriers are the same as, so the only thing that they can cut, one is to cut some costs and the second is to lower the fares. Over a period of time, the cost, the fare difference between the so called full service carriers and the low cost carriers has narrowed because the market is loaded towards lower fares. Clearly, if I get a cheaper fare, I do not care that I am not getting lunch or dinner. But it is also indicative of the false idea created about the large aspirational Indian middle class with a huge growth in the aviation sector. The fact is that the aviation sector growth has also been driven by low fares. So what you are saying is expansion of the civil aviation sector has been driven by low fares and that is meant that the full service air aviation industry are actually running below cost and effectively the margins are very thin it has affected air India and jet which are full service airlines which used to have higher cost much more adversely than the rest of the sector. And it had earlier driven Kingfisher out of business because his costs were too high and he refused to lower his fares more. Jet airways still has roughly 50 percent higher costs per passenger than the low cost carriers. Not because of parking charges, terminal charges, fuel costs because these are all the same. But they continued with the old practice of paying more for their aircraft leasing at higher costs, paying higher wages to staff, having more staff than elsewhere. They even pay more for their catering than other airlines do, thinking that they can recover this with that. But they can't do higher fares because the market is driving down fares too. So I think this is a crisis which today has come to bite jet airways but sooner or later going to bite all full service carriers. Kingfisher is gone, jet air is in crisis, air India is in a very deep financial crisis. So you really talk of Vistara which is a new one for instance okay and there aren't many else. No so therefore one is that I think the Indian civil aviation sector has to evolve new models which are like hybrid models. I'm just going to park this for the time being. So what you're saying is there's a structural problem which has now affected jet as well. Now if I look at what the jet problem is there are a couple of other issues that you've raised. One is the fact that they leased at higher cost which makes no economic sense. They bought aircraft at higher cost which also doesn't make any economic sense. And what else is specific to jet which has brought them to this pass? The second issue which is specific to jet is actually jet has been for a long time in fact ever since its inception been gaming the system and in classic crony capitalist mode has kept shifting policy goalposts in its favor. The jet prevented Tata's from entering the aviation sector for 16 years by why do you say jet was the one who did it? Because at that time jet was the only private sector airline and a policy decision was instituted to say no foreign airline can invest in the Indian domestic aviation sector. Jet already had 20% share from Kuwait airways and from Gulf air. It divested those which it was prepared to do so long as it could keep Tata Singapore out and this policy lasted 16 years to do this. Finally when government did open up the sectors to foreign airlines then at that point jet had already diversified itself into both a full service and a low cost carrier when it took over Sahara etc. So that was one policy fiddle that they did. They also got permission to have 100% NRI ownership. The only NRI owned airline was Nareesh Goyal's jet airways. That was also a policy that lasted 15 years. So they have done everything possible also. So now they've got a coming in because finally when the government said okay you can have open up jet airways took advantage of that and brought in etihad. But interestingly this was done a year after King Fischer collapsed. Maybe if it had come a year earlier the Malia would also have taken in a foreign airline investor but he didn't. The policy came a year after that and the only survivor again was Nareesh Goyal's. But it's also interesting at least Nareesh Goyal had aircraft unlike King Fischer which had at the end of it I think only two aircrafts everything else was leased. But coming to Nareesh Goyal so this is what you're saying is he changed the rules of the game continuously but vis-à-vis the economic viability of jet. So there were three things. Initially the model that all full service carriers followed is we will offer premium services in return for higher fares and premium services meant better staff more staff better livery inside the aircraft better terminal facilities lounges etc etc but like we were discussing when the fares got pushed downwards costs remained high but the other interesting thing with jet airways did was that it kept making payments to a separate company called Jet Air which is 100% owned by Mr Goyal again as consultancy charges irrespective of what is happening with debt with losses with etc. So that's a cushion that Mr Goyal has built for himself. Even if the airline sink his private income continued as the airlines were sinking and therefore the lenders are the one who got left holding the bag and of course jet employees who have suffered a huge loss they have not been paid for some of them six to eight months and so on. So it has been done on the back of the essentially the lenders and the employees. Yes particularly the lenders the employees frankly have enjoyed several privileges which other airline employees have not had but that's what jet was giving them but that's what the point is that you have not paid them salaries for x number of months and therefore it is on the back of that that you've carried on operations while you're still taking money out of the company by paying as you said jet air consultancy services for running the company down to the ground that's right that's that's the way I mean I'm seeing it as Narej Goyal versus his employees in this particular case but of course you're right the bigger length bigger share of the losses are being held by A the lenders and now I guess Mr Etihad would be doing the day the invested money in it in lieu of which they would have got essentially certain routes which is what they have paid for probably that's right and there was a time when Etihad was prepared to invest more provided Narej Goyal stepped aside he wasn't willing to which he wasn't willing to do till the very last minute and that delay of about six months in Narej Goyal's departure has I'm afraid made a big difference to the future of jet because losses have accumulated hugely lessers have taken back their aircraft so today jet airways is left with far fewer assets than Etihad in terms of aircraft its parking slots and its landing and takeoff slots in Indian airports are under threat airports have this I have given notice to jet that if they don't get their act together in a couple of months which doesn't look likely now those slots will also go which are major assets of any airline operating so now there is even less incentive for bidders to pay a higher price and for stake in the airline so unfortunately I think it's the lenders who will have to take a haircut a loss in this and bulk of the lenders are public sector owned banks which means the taxpayer is going to have to pay for this again. Ragu there is no haircut if the airlines do not survive it's really going to be you know distressed sale of the assets which as you said are very few so it's really going to be huge loss for the banks again and this is for not for public benefit but for private benefit in this particular case no no likelihood of revival of jet if your prognosis is correct very very unlikely and the bankruptcy and insolvency structures which have been set up for precisely such eventualities has not been evoked in the hope of some bailout package coming out so you haven't got that you haven't got this I'm afraid the future for jet airways is bleak. Thank you very much for being with us and discussing probably the way that Kingfisher has gone is also the way jet will go probably with much greater damage to various people including the employees and the lenders. This is all the time we have a news click today do keep watching news click do visit our website and look at our YouTube channel