Flying lessons

Failures are an inherent aspect of free markets. We need better bankruptcy laws to manage them, rather than the bailouts of corporate
It is one thing for the Centre to facilitate the infusion of private capital to rescue the struggling private airline SpiceJet, and quite another to try and bail it out. Surely, it must remember the painful ₹7,000-crore bill for its previous — and unsuccessful — bid to save Kingfisher Airlines. The truth is that SpiceJet’s troubles, like that of the defunct Kingfisher Airlines, are far more deep-rooted than a mere shortage of working capital. Therefore, the Centre’s reported moves — of requesting banks to lend more and asking State-owned oil marketing companies to consider supplying fuel to the struggling airline on credit — are puzzling, to say the least. They also reflect a fundamental lack of understanding of how the commercial aviation sector works. Infusing more cash into the airline may help it keep flying for some more time, but is this enough to return it to profitability?
What was really required before things came to such a pass was a drastic restructuring of the airline, a rationalisation of its fleet, a major overhaul of its operations and routes and a fundamental change in its approach to the business. SpiceJet, which has reported losses for five quarters in a row now, precipitated a major fare war in the industry earlier this year by selling steeply discounted tickets in advance to fill up seats and generate cash flow for the near-term. At that time, many industry experts had doubted whether sacrificing the future to save the present would help SpiceJet stave off disaster. As its own auditors had noted in their notes to the company’s accounts, “The company’s total liabilities exceed its total assets by ₹1,460 crore. These conditions, along with other matters, indicate that the existence of material uncertainty may cast significant doubt about the company’s ability to continue as a going concern.”
Full Editorial at: http://www.thehindubusinessline.com/opinion/editorial/flying-lessons/article6708622.ece?homepage=true

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