Mergers and liquidations reshape India's turbulent aviation sector

It's an eternal mystery. Aviation is one of the world's most precarious businesses, yet it continues to attract investors

On November 7, the Supreme Court passed an order liquidating Jet Airways, three decades after it took wing and raised the bar on service standards in domestic aviation. Five days later, 11-year-old Tata-owned Vistara, the airline that was considered Jet’s successor in service values, flew into the sunset following a merger with Air India.

 

Both events — a bankruptcy and a merger — reflect the rollercoaster fortunes of the Indian aviation industry ever since the government announced its “open skies policy” in April 1990. Since then, India has seen almost 45 airlines turn defunct — most of them ceasing operations and others subsuming their identities following mergers, acquisitions and internal restructurings.

 

Here’s the eternal mystery. Aviation is one of the world’s most precarious businesses, vulnerable to multiple unknown unknowns (war, oil price fluctuations, volcanic eruptions and so on). Indian aviation, with its high cost structures (aviation turbine fuel, aircraft leasing, pilot training) and uncertain regulatory regime, is among the world’s riskiest. Yet, in a country where access to capital is scarce and expensive, this capital-intensive business retains a magnetic glamour for the Indian business world. No matter how many failures, newer investors kept entering the fray.

 

Since 1991, the airline business has attracted all manner of backers — from, among others, a hatchery owner to the promoter of dodgy chit fund, a ticketing agent, a liquor baron, politicians, an Udupi restaurateur, to a well-known stock market bull, and the chairman of India’s largest conglomerate.  Names such as GoAir, ModiLuft, Damania, Kingfisher have all entered the annals of aviation history.

 

Remarkably, few other industries have created as much popular drama. It began with the first of the private airlines in the post-liberalisation era — East-West Airlines promoted by Kerala businessman Thakiyudeen Abdul Wahid in 1994. A year later, Wahid was gunned down by gangsters for reasons yet to be established but it had a spin-off effect on the airline. With banks increasingly reluctant to lend and debt to suppliers piling up, the airline folded in 1998. 

 

Naresh Goyal’s Jet Airways, which started operations a year earlier, was among the earliest and most successful of Indian privately-owned airlines to challenge the state-owned carrier. That eventually prompted a messy merger between the domestic operator Indian Airlines and flag carrier Air-India and ill-judged aircraft acquisitions that sent the business into a tailspin, from which it emerged only with the dramatic Rs 18,000 crore buyout by the Tata group in 2021. Here was all the grand theatre of a Tata-owned airline, forcibly nationalised in 1953, returning to the group hangar.

 

Despite his undoubted dominance of the industry for a decade and a half, Naresh Goyal will forever be remembered for a dramatic late-night press conference, where he invoked his late mother after Jet Airways employees went on strike following job cuts, and for a tearful performance in court after attracting the attentions of the Enforcement Directorate. In 2019, his wings clipped by rising debt and an inability to compete with IndiGo, the aggressive new low-cost competitor on the block, the airline was grounded and efforts by a little known consortium to revive it went nowhere.

 

Before him, Vijay Mallya, the poor-man’s Richard Branson with his carefully cultivated image as the “King of Good Times”, became better known as an escape artist, fleeing to London to escape creditors in India. His Kingfisher Airlines, a 2005 startup, a gift for his son apparently, bought low-cost carrier Air Deccan in 2007 and attempted the impossible. Offering full service values to a low-cost operation eventually drowned the company in debt.

 

G R Gopinath, from whom Mr Mallya bought Air Deccan, has enjoyed better fortunes. He pioneered the low-cost, no-frills concept with Air Deccan but failed to turn a profit, eventually selling to Kingfisher. Later, he set up a cargo airline that closed two years later. Undaunted, he has managed to produce a film version of his memoir Simplify, a dramatic story of warding off competitors, corrupt bureaucrats and politicians to realise his “dream”.  The Tamil version Soorarai Pottru was released in 2020 and the Bollywood version, Sarfira, starring Akshay Kumar, hit the screens this year. 

 

Even no-frills carrier IndiGo, the latecomer founded in 2006 that dominated Indian skies ever since, entertained readers of the business press with the two partners, Rakesh Gangwal and Rahul Bhatia falling out over future strategy and trading accusations over related-party transactions and board control. The dispute took in the market regulator, the Prime Minister’s Office, the aviation regulator and overseas arbitration before Mr Gangwal resigned from the airline’s board and started scaling back his shareholding.

 

With domestic airlines carrying about 150 million passengers a year, India is now the world’s third-largest aviation market, almost 79 per cent of it comprising low cost-carriers. By 2030, it is expected to carry 300 million passengers a year. That soaring prospect could be grounded by the old problem of debt and losses. Losses in FY25 are likely to be between Rs 2,000 crore and Rs 3,000 crore.  No matter, the industry is on a shopping spree. IndiGo, which commands 63 per cent of the market, has ordered 990 aircraft, the Tata group 555. Even fledgling Akasa Air (founded 2021) has orders for 226 aircraft.

 

This is a fighting response in an industry where aircraft lease liabilities account for the bulk of airlines’ debt. Perhaps it’s a reasonable bet to take in an industry that’s become a duopoly between IndiGo and the various airlines of the Tata group that collectively command 89 per cent of the market. Any more takers now, you wonder.