SpiceJet bailout: Why should banks put in cash, if billionaire Maran won't?

There is no political, economic or even humanitarian logic in the government seeking to bail out SpiceJet, the airline next headed for death row.

Among other things, the Civil Aviation Minister, Ashok Gajapati Raju, has asked public sector banks to give the company working capital loans (of around Rs 600 crore) on the basis of assurances from the promoter, and the public sector oil companies are being asked to give the airline 15 days of credit for fuel, reports Business Standard .

Why, can’t the billionaire Marans, who own the Sun TV Netowork, fork out Rs 600 crore till they find a buyer?

Worse, the ministry has overturned an order of the Director General of Civil Aviation (DGCA), the aviation regulator, that barred SpiceJet from offering bookings beyond 30 days. This is retrograde, for the reason behind the DGCA ban was SpiceJet’s tendency to use long-term ticket sales at low rates to finance short-term cash flow needs. This is like selling your house to finance a meal today. And ministers ought not to, in general, overturn the rulings of so-called independent regulators.

The logic given by the ministry is that this bailout is needed to “tide over the crisis and to keep SpiceJet from shutting down, as it would be a major setback to the Indian civil aviation sector.”

Question: did the management not know it was headed for a financial crisis when everybody and his aunt knew it?

The civil aviation sector has been ruined by wayward government policies and foolish promoters who were busy under-cutting ticket prices endlessly for cash-flows. The aviation sector is not going to be saved by saving SpiceJet, just as the endless bailouts of Kingfisher or Air India did nothing to revive it earlier . Instead, all the bailouts achieved was prevent a quick reappraisal of failed business models and the entry of more robust players like the Tatas.

The SpiceJet bailout is also morally wrong for what the minister is doing is asking banks, already staggering under a huge burden of bad loans, to bail out a cash-rich billionaire’s sagging business.

The Marans of Sun TV Network own 75 percent of Sun TV, which means their holdings alone are worth over Rs 10,000 crore at current stock market valuations. Raising Rs 600 crore before selling the airline can hardly be a huge burden for them.

SpiceJet’s problem is not that it does not have cash, but that its owners do not want to invest their cash in it. In this scenario, how is it legitimate for a government to pressure nationalised banks to invest in a hugely loss-making airline when the promoter himself won’t put his money where his mouth is?

Between Kalanithi Maran and his wife, they paid themselves over Rs 120 crore last year as salary from Sun TV, and so it cannot even be argued that their personal wealth is low and they cannot sell too much of their shareholdings to invest in SpiceJet. Finding the Rs 600 crore for SpiceJet should be easy even with the Marans’ personal wealth beyond the shareholding.

Politically, too, why would the Modi government want to bail out a DMK-linked businessman at the cost of the country’s banks? There is no political benefit in this at all for the BJP - only a liability.

As for keeping the airline afloat and employees in jobs, how did it become the government’s job to worry about it and not that of the Marans? If a billionaire cannot care enough to save his company and the jobs of his employees, who should be held accountable?

The Marans should be shown the door and told firmly that they should pay for the revival of their airline. they can even raise cash from banks by pledging their Sun TV shares - like Vijay Mallya did with his liquor business. If they choose not to, the airline should be sold at Re 1 to the highest bidder, if need be. Let the Marans take the loss and exit. The airline is still salvageable, and there could be buyers who want a quick entry into India, but the promoter needs no bailout.