Mumbai: At present, the world is watching the Indian aviation very closely. Even in India, the experiences are not that good about the Indian aviation sector. The sector has been registering significant growth but on a lighter vein it is said that Indian aviation companies like Indigo have Pilot issue, Jet has a financial issue, Spice Jet has aircraft issue and Air India is facing passenger issue. Such an issue brings us to discuss corporate governance issues.
Let us take the example of Jet Airways:
All the stakeholders in the Jet Airways financial crisis are working on plan B to protect their own interests. The promotor himself too seems to have a plan B to avoid any change in the board. It is heard that Jet is in talks with some other successful airlines in the Middle East to revive the beleaguered company.
Jet has held meetings with Qatar Airways to replace Etihad. Qatar has an eye on the Indian domestic market. Qatar Airways sees a big opportunity in India. Though the Indian domestic market is price sensitive; the massive size of the market appeals to many aviation companies.
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Despite the losses Qatar Airways is confident of serving new passengers and has been adding new routes at a greater speed than compared to other airlines. The company in the past has approached Indian airlines with an investment proposal and also has expressed their interest to start a new Indian airline company.
These moves by Qatar Airways definitely prove their interest for the Indian aviation sector. At the same time, the other side of the coin is that they too are looking at a substantial stake in India.
Currently, Qatar Airways has allocated a certain amount of fund to invest in India. Thus the company is on a hunt to find a proper airline to invest in. India is the fastest growing aviation market and the fourth largest aviation market in the world.
The Indian aviation sector has recorded double-digit growth for years and thus every airline would be interested to step a foot in such a market that is flooded with opportunity. At the same time return on investment too matters for any company. Qatar Airways too is searching for Indian airlines that would assure good return on investment. Hence Qatar Airways is unlikely a suitor for Jet Airways.
In the Jet Airways case, due to various reasons, the company’s debt has mounted beyond its forte. The lenders and investors too have refused to bail out expressing reservations about the present management of the company. The lenders have worked out a rescue plan that will give them a majority control to reconstitute the board.
Etihad’s condition is to cap promotor Naresh Goyal’s stake at 22 percent to bail out of the current financial crisis. Moreover, Etihad made Goyal’s removal as a Chairman of the board a requirement for bailing out the company. Thus Jet airways is facing severe pressure from lenders, lessors, employees and agitated passengers.
Lessons for the future
The boards of the companies mostly evaluate the risks taken and the risk-return trade-offs. Interestingly, Indian aviation companies do not hedge on forex and oil prices. Moreover, in the promoter-led companies, it is very tough to challenge the decisions of the promoter. Hence the financial crisis of Jet Airways has prompted to revisit the corporate governance norms.
