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The appropriate umpire

By Devika kher

The Spicejet case allows the Directorate General of Civil Aviationto emerge as an appropriate umpire.

The Government regulators got it right this time. Based on the remarks of the hassled civil aviation minister Ashok Gajapathi Raju, the Directorate General of Civil Aviation (DGCA) Chief Prabhat Kumar took the much needed steps to monitor Spicejet, a heavily indebted domestic airline in a timely manner. The airline was put on the cash-and-carry mode after the Civil Aviation Minister expressed his concern regarding the flight. All these measures were taken by the DGCA as a step for “heightened surveillance”.

Spicejet is a low-cost Indian airline owned by the Chennai based Sun Group, a conglomerate of Kalanithi Maran who also own the Sun TV Network, the largest media network in the country. It commenced services in 2005 and has Sanjeev Kapoor as the current CEO who took the position in April 2014 as the airline made a substantial loss of Rs.1,186 crore in 2013-14 and was in a dire need of investments. In the turbulent times faced by the airline last year, the owner Kalanithi Maran invested Rs. 54.27 crore into the airline as it made a loss of Rs 559 crore for Q2FY14.

Not keeping with the financial condition of the airline, Spicejet managed to be the second largest passenger carrier till August 2014 with a 20.9 percent share of the domestic market. A major attribute for the high number of passengers was the low fares maintained below the cost price, which eventually led to the increase in the losses made by the airline. As the financial health of the airline became grim, the Civil Aviation Minister pointed it out as “giving (them) a heart attack”.

On December 4th, the DGCA Chief issued a warning against Spicejet airline asking it to provide a schedule for payment of a Rs.1,500 crore loan to various vendors. The DGCA Chief also took other steps, such as withdrawal of the credit facility for airport user fees, in response to the Rs. 200 crore debt owed by the airline to the Airport Authority of India (AAI). However, an interesting aspect of the decisions was, the caution taken to leave the market untouched. Instead the DGCA went a step ahead and asked the airline to stop advance bookings of flights for over a month as well as to refund the customers of the cancelled flights. The airline was asked to withdraw slots to minimise the impact in the aviation industry. Besides the market factors, the safety measure have also been kept in mind when the DGCA ensured that pilots would not be made to do overtime, as 115 commanders and 17 co-pilots resigned on Saturday, December 6.

Another intriguing aspect was the government’s ability to avoid taking extreme steps. For instance, on one hand the authorities refused to provide financial support to the private airline, on the other, they extended the deadline for the debt payment to AAI by almost a week. Hence, the government took the stand of not being authoritative enough, so as to ban the airline, but were cautious to not misuse the fiscal resources at hand.

This case can be seen as an example of the government playing the role of a fair umpire. As an umpire the government should set the rules of the game. It should ensure that all players adhere to it. If this is done right, it helps the government in asserting legitimacy over the players in the market. In this case, the government has shown timeliness by taking steps before it was too late. This not only helped improve the government’s ability to overlook the scenario but also saved the employees, investors, customers and agents from another massive loss after the Kingfisher Airline fiasco.

Fortunately, unlike the Uber case, this scenario gives hope for a government body with the ability to realise its role in accordance to the objective required to be attained. Hence, instead of impairing the market by banning a firm from operating in the national capital, the DGCA concentrated on reducing the impact of the losses of one firm from adversely affecting the entire industry. The government authority in the case of Spicejet used its power to sustain the market, instead of using it as a punching bag for the political economy.

Devika Kher is a Research Asoociate at the Takshashila Institution.

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