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Aviation is not an entrepreneur's cup of tea

First, a very basic fact: the aviation industry is not a money spinner. It is perhaps the most competitive industry in the world with margins not exceeding one to three per cent. A four per cent margin is dream time and only three airlines across the world have ever managed to touch that figure. These include Singapore Airlines and British Airways (that overtook Singapore Airlines for the first time last year).

According to Sethi, Lufthansa, with a fleet size of 320 aircraft, now runs on a profit margin of two per cent: in itself a huge improvement over the last five years.

To put it simply, aviation is not an entrepreneur's cup of tea. You need money and you need the ability to take huge losses for at least three to four years. But in India, says Alok Sharma, "Those who came in thought this was big money, Ek din moolah dalo aur doore din moolah lo." So, all the 18 who initially came in were small fry.

"In a sense, they were fly-by-night operators. At least, they came in with that mentality using the leasing mode. No one invested money in buying planes. The idea was: if this doesn't work, we'll just return the aircraft," says Jung. Even today, he says, no airline has created any real assets in terms of of aircraft, maintenance, technical and training infrastructure.

The only airline that is still flying high -- Jet Air -- does so because it has a reasonable supply of money coming in from its two partners Kuwait Airways and Gulf Air and has expanded its fleet size to a respectable 12 aircraft. Its other asset is Naresh Goyal's ability to pick the right men for the right job. U K Bose's Sahara, at a much smaller scale survives on money from its chit-fund operations.

Also, no Indian company had previous experience in the aviation business. Those who ran pre-Independence private airlines like the Tata Airlines must surely be too old to start a new company now. So, they poached for trained personnel. They poached from Indian Airlines and from each other. Suddenly, pilots worth Rs 35,000 a month began to be priced at Rs 150,000 or so a month.

Bottomline: Planes were leased from outside at international prices, most maintenance was done by foreign companies, again at international prices, and the only 'Indian advantage' -- cheap labour -- was coming at thrice its normal price. This essentially left no 'Indian component' in the aviation industry. But aviation fares were very much Indian -- even today, European fares for equivalent distances in India are almost five times higher. This kind of a combination certainly made for a crash landing.

Says Jung, "The writing was on the wall from day one."

But now, if private airlines are to survive in India, the government for once, needs a formulate a coherent policy. Foreign participation in airlines till today is done on a case-by-case basis: which is why Jet Air managed to get a permit while the Tata-Singapore venture is still to be cleared.

The current civil aviation minister, C M Ibrahim, hasn't really helped very much by issuing contradictory, vague and frequent statements on the issue.

Whatever the Union Cabinet finally decides in its wisdom, there is one axiom it cannot ignore: In aviation, big business is not bad business.