Notwithstanding platitudes about bad loans and NPAs, the government seems to have applied little thought in handling SpiceJet’s problems
As the capital market regulator keeps itself busy with tightening and rewriting corporate governance rules, the near-burnout, and probably bailout, of SpiceJet exposes the sham of this exercise.
As a consumer and victim of flights cancelled by the airline over the past month, you may be frothing with anger at the loss inflicted on you; but there is no redress in sight. As an employee, you are even worse, like the employees of Kingfisher Airlines. You will continue to work in the hope of being paid even while salaries are delayed. Months later, you may still be unpaid, while the Maran brothers, like Vijay Mallya, will see no dent in their lavish lifestyle and will continue to zip around the world in private jets. If you are a shareholder of SpiceJet, you are at the bottom of the heap. Most often, the bourse is seeking a clarification from the company on media headlines with some occasional opaque responses.
Just as it seemed that banks had woken up to RBI governor Raghuram Rajan’s tough talk on bad loans, at the V Kurien Memorial Lecture, the civil aviation ministry ordered banks and oil companies to bailout SpiceJet and the director general of civil aviation (DGCA) to lift curbs on the airline. After waiting for some official clarifications, here are a few questions to which neither shareholders nor taxpayers, who ultimately bear the brunt of all bailouts, have an answer.
• Dr Manmohan Singh and the United Progressive Alliance (UPA) government attributed corporate bailouts and shady deals to the ‘compulsions of coalition dharma’. The National Democratic Alliance (NDA) does it for the ‘larger good of the aviation sector’. The question is: Why hasn’t the civil aviation ministry ordered a quick White Paper on the rules, policies, taxes and other issues, including unhealthy competition (tickets at Rs1), that have destroyed the aviation sector? Six months after assuming power, we have a deafening silence from the government on the massive bailout proposed by the UPA for Air India and not a word on Kingfisher Airlines either. We need a sensible aviation policy and a tough regulator in place, not just for airlines but also to ensure air safety and airport security. The government-ordered bailout, with no public information on the conditions attached, is a terrible idea.
• The NDA does not have a group of ministers (GOM) concept; so how has the civil aviation minister arrogated to himself the power to direct government banks which are under the finance ministry and regulated by the Reserve Bank of India (RBI)? Or to ask oil companies under the petroleum ministry to make further concessions to the airline when there are large arrears already? Media reports subsequently suggested that oil companies have ignored the aviation minister’s order and refused further concessions to SpiceJet.
• According to media reports, Kalanithi Maran and his wife Kavery, who control over 50% of SpiceJet’s equity, will back the Rs600-crore bailout with a personal guarantee, even as the promoters say they can’t put in more money. It is also hard to forget that Vijay Mallya had extended a personal guarantee for Kingfisher Airlines’ borrowings and went to court to collect a guarantee fee. But when the chips were down, Mr Mallya was unwilling to deliver on the guarantee.
• The ministry of corporate affairs (MCA) has enormous, but largely unused, powers to check or change managements or impose curbs on their powers, perks and remuneration.
SpiceJet is a fit case for quick action in shareholder interest because of the track record of the Marans. The Central Bureau of Investigation (CBI) has booked Dayanidhi Maran for diverting 323 high-speed phone lines to his home and connecting them through a dedicated underground cable to the SunTV network, to avoid paying fat telecom charges.
In August 2014, CBI also booked Dayanidhi Maran and his brother Kalanithi on charges of receiving a bribe of Rs742 crore in the Aircel-Maxis case and of coercing entrepreneur C Sivasankaran to sell Aircel to Maxis.
• Delivering the V Kurien Memorial Lecture, Dr Raghuram Rajan said we have many sick companies but no ‘sick promoters’. The Marans fit the bill. Forbes India estimates the Maran’s net worth at $2.3 billion in September 2014. Business Standard has listed Kalanithi Maran and his wife Kavery as the highest paid CEOs in India for the past couple of years. The couple took home nearly Rs120 crore in salary and perks in 2013-14 from Sun TV alone.
• Finally, will minister Ashok Gajapati Raju tell us why the Rs600-crore bailout will not be a futile when SpiceJet’s outstandings are in excess of Rs2,000 crore? What other steps has he taken to ensure that he is not asking banks, who have already lent over Rs1,500 crore to SpiceJet, to throw good money after bad, if the management fails to secure the long-term investment that it hopes to get?
The firms against whom SEBI passed orders, were found to be engaged in fund-raising activity that was classified as Collective Investment Scheme, but did not have required clearances from the regulator