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Why SpiceJet Should Not Get A BailOut

Why Is The Narendra Modi Government Bailing Out A Billionaire's Airline?
NEW DELHI, INDIA - MAY 24: Fire trucks surround a Spicejet Boeing 737-800 aircraft which made an emergency landing at Indira Gandhi International airport on May 24, 2010 in New Delhi, India. An Indian passenger jet carrying 184 people on board made an emergency landing in New Delhi's main airport on May 24, 2010 after the aircraft suffered a tyre-burst while taking off. The Boeing 737-800 aircraft aborted a flight to Srinagar city in Kashmir and returned to the Indira Gandhi Airport which declared a 'full emergency' before it was allowed to land, officials said. (Photo by Barcroft India / Getty Images)
Barcroft Media via Getty Images
NEW DELHI, INDIA - MAY 24: Fire trucks surround a Spicejet Boeing 737-800 aircraft which made an emergency landing at Indira Gandhi International airport on May 24, 2010 in New Delhi, India. An Indian passenger jet carrying 184 people on board made an emergency landing in New Delhi's main airport on May 24, 2010 after the aircraft suffered a tyre-burst while taking off. The Boeing 737-800 aircraft aborted a flight to Srinagar city in Kashmir and returned to the Indira Gandhi Airport which declared a 'full emergency' before it was allowed to land, officials said. (Photo by Barcroft India / Getty Images)

SpiceJet seems to be following the exact flight trajectory that Vijay Mallya's Kingfisher Airline followed. But why the government is willing to repeat the mistake committed by the previous one is flummoxing.

SpiceJet has managed to convince the government to help it out of its cash crunch. Nationalised banks have been asked to lend it as much as Rs. 600 crore. State oil companies will be asked to provide the airline with 15 days worth of credit. Airport operators will offer a payment window for the same period.

Today, state oil companies rebuffed the government and refused to provide it with jet fuel on credit. SpiceJet grounded all its flights and passengers had a harrowing time at airports. Later, the airline said it had reached a deal and flights will take off again.

In about two months, the airline is supposed to secure funds from external investors for a more long term solution. That sure sounds familiar. SpiceJet has tried for more than two years to get an external investor onboard, without a great deal of success.

If banks now lend to the airline, they will be throwing more good money after bad. Government should not be propping up bad businesses. When a company does well, its shareholders gain. When it is doing badly, it shouldn't be any different. And Spicejet's operations are already too small for the 'too big to fail' bogey.

The SpiceJet COO Sanjiv Kapoor disagrees that it's a bailout, saying the new cash will just allow the airline some breathing time. But it had enough time before things came to this pass.

The government should learn from experience. Earlier, massive credit infusions into Kingfisher could not prevent the total collapse of the airline. Banks are still trying, without much success, to get their money back. Without a complete management shake-up in SpiceJet, nothing else should be expected. "Without significant and immediate promoter funding, I see no future," said Kapil Kaul, CAPA Center for Aviation's South Asia CEO, in this interview.

SpiceJet's promoters have refused to put in any more funds. "We do not have the liquidity to invest large sums at the time which is why we need bank financing. For which the promoters are willing to provide a guarantee, S.L. Narayanan, Chief Financial Officer of Sun Group, said in an interview. "We cannot do more than this."

SpiceJet is majority-owned by billionaire media tycoon Kalanithi Maran's Sun Group. Sun TV is worth Rs. 13,548.63 crore by current share price, and Maran owns 75 percent of it.

The wealthy promoter is unwilling to invest in his troubled airline, but wants public banks to risk their capital. He, not the government, is responsible for the jobs of SpiceJet employees. Instead, Maran has said that he will repay bank loans as soon as SpiceJet can secure external funding. That's estimated to take two months, but might well take much more if it materialises at all.

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This article exists as part of the online archive for HuffPost India, which closed in 2020. Some features are no longer enabled. If you have questions or concerns about this article, please contact indiasupport@huffpost.com.