FEAR : The new 'Investor' in Indian Aviation

Indian Aviation is on a ventilator and as of now it has an unlikely investor…..”FEAR”. If not for ‘FEAR’ atleast two of them would have been inching towards closure by now. Indian Aviation is going to see pink slips coming in tons. No one can bail Indian Aviation out, not even the government. Any amount of money put in by the government or by investors or bank loans will be insufficient to let these companies survive. It could be just Air India (if government continues to fund it) and may be one private airline.

The Wadias (Promoters of Go Air) wrote a letter to its employees and said they are waiting to hear from the government on bail out. They can keep waiting, they will hear nothing. Even if oil will be available cheap, the big cost centre of Employee remuneration remains high and add to it the low demand.

Lets look at the scenario in Indian Aviation. Air India, being a government owned, they get paid even if it is late. Vistara cuts pay, but seen as reasonable. The employees have a certain level of trust with the Promoters, the TATA group. Go Air has been worse of the lot and Spice Jet is not a lot behind.

The part time Civil Aviation Minister has been tweeting religiously everyday on the mileage and tonnage of cargo that is being transported and the Airlines has not been out of revenues even if it is a trickle. SpiceJet is getting a lion’s share in it and its proximity with power is no secret. But here is a situation where no one can save anyone. SpiceJet is not paying its pilots, yet it threatens its pilots and some whatsapp groups (formed by Ex Jet Pilots) have been disbanded.

How does ‘Fear’ become an investor? The pilots, the cabin crew, the engineers everyone knows the situation out there. They know if they lose jobs they are not going to find any. So the human brains are conditioned in such a way that they prefer to hold on to what they have. So a person who was getting Rs.100 for a work is suddenly getting paid Rs.10 and yet he will work, because he knows the other option available to him is not even having the Rs.10. In this environment, these companies know this clearly and they will use it to the maximum possible. But the fact is that, in this market, it is not going to let you survive, it just delays your death.

Jet Airways is the greatest example of this kind of human behaviour which let a company extend its life by six months. The pilots and the Engineers never put their foot down for a ‘fear’, Jet extended its life by 6 months, but it eventually died. The loss was only for the pilots and engineers. Jet’s case was not of corona virus, its case was mismanagement. Perhaps, Jet could have been saved had the pilots and Engineers put their foot down and had Goyal understood the changed scenario. Jet fell, but after extending its death by 6 months.

This fear will be exponentially higher than the Jet times, because everyone is aware of not just the bloodbath in Aviation but the general economy. Most of these employees would have some part of their saving invested in securities, mutual funds, apartments. There is no way they would see any money coming from any of their investments and they still will have their EMI’s.

This Human Behaviour will let some of the Airlines extend their life for some time, but they will perish in the market forces and the prime candidates for this to happen is Go Air and SpiceJet. Air Asia India will probably see some collaboration with Vistara otherwise their existence will also be doubtful because the Malaysian government itself is thinking of merging air asia with Malaysian airlines.  

Pay cut reversals at Indigo, its not a change or heart, it’s a change in business strategy

Indigo first said it would cut pay and later they reversed this decision and paid its employees. What led to a change of heart? It was never the heart, it was strategy. They suddenly realised how important it is to rock the boat of their rivals. The lesser the competition the stronger the chance of survival. There are rumours floating that Indigo is going to offer bonus to the pilots from other airlines to join them because they need pilots because of pending deliveries. No sane management would ever hire anyone. Is it a strategy to pull out those key employees that is necessary to keep the Air Operators permits? No Airline can operate without sufficient numbers of DE / TRI etc. I do not think, Indigo would be foolish enough to do this so openly that it will change it’s rivalry into enmity. Indigo had a change of heart because it is employees who will decide its future. The very same employees were pushed to the brim and everyone were complaining just before the virus struck but now with this one step, indigo is highlighting itself as the best employee in airline business. Indigo’s profit mountain is a product of its employees, by giving salaries indigo did not do any favour, but it certainly won the trust of its employees.

Indigo’s size is its own enemy

Now that the employees have been paid, they will put their lives at stake to get them survive, but for Indigo, suddenly their size is their enemy. With 250 aircrafts, its simply too heavy. I do not think any company should take the risk of operating with more than 50 aircrafts, but indigo is going to start with 65, but still this means over 100 aircrafts are grounded and atleast 2 sets of crew per aircraft is going to be a cost center. 2 sets of crew and if you put in support staff, that means atleast 2000 pink slips of ‘essential staff’ (Pilots, Cabin Crew, Engineers) alone need to pulled out just for its ‘survival’. The number of cuts will be far more than 2000.

Indigo has about 600 aircrafts on order just from Airbus. Indigo hopes to survive this virus and rule Indian Skies almost like a monopoly. But the economy in total is hurt so badly that people are now having money to survive and not to spend. No one is in any hurry to fly anytime soon. With or without the vaccine or a medicine for cure, the economy will take atleast 5 years and that is too long a time. What do you do with the 600 aircrafts on order. Litigations, claims and compensation itself could pull it down badly even if it manages to survive this virus. From this perspective, SpiceJet is better off. Their pending orders of about 200 aircrafts are all 737 MAX that are unlikely to get the FAA certification. So at least SpiceJet don’t have to worry about the litigation that pulls out money from their pocket, they only have to worry about pulling money out of Boeing!!!

Pink Slips are Potential Claims and Indigo at the greatest risk

Pink slips are a certainty, most of those people are unlikely to find another job and this becomes a ‘potential risk’ to the existence of these companies because every terminated employee has a potential ‘claim’. If these people get together, then together these claims could be substantial and if these persons fight it out strategically, it can land up a company under Bankruptcy.

SpiceJet and Go Air also have to cut out tons of pink slips. But now comes the problem for Indigo. None of the employees will be able to fight for these potential claims individually. But this time, it is a little different, people have nothing to lose and if there is a slight chance at getting some money they could fight it out by coming together and there is no dearth of lawyers willing to take small fees and have volumes to manage a litigation. It is here that indigo is at a higher risk than any other. Even when lawyers take up these matters, they do so with the hope of seeing the money at some point in time, but with Go Air and SpiceJet on the brink of Bankruptcy, lawyers may not be too keen on going after them because they would land up in Bankruptcy court and stay there for years. But, for indigo, it is sitting up on a mountain of cash and that is lucrative for a lawyer to go after it. If he gets an order from the court, pay out is a certainty.

If indigo fires say 2000 people and even if 100 come together, indigo will pay up heavily because every gain made by this group will encourage the 1900 potential claims too and everyone will go after this company. It is here that indigo decided to show its big heart so that even when it fires its employees, they would say “it’s the tough times, but as soon as the environment is better, we will hire you”. It’s the art of ‘seeking time’. It is not the heart, it is a strategy.

Companies bets on the weak Judicial system

Airline companies bank on the fact that employees will not take them to court, because individually none of them can fight their might. The strategy is the same used against passengers whose tickets have been cancelled and monies not refunded. Which passenger would go through the Judicial system in this country seeking a refund of Rs.10,000 by paying a lawyer atleast Rs.25,000 and spending 5 years at the lowest rung of the Judicial set up. If anyone does, then these companies would spend 10 lakhs to ensure they do not pay up Rs.10,000. People will think, why would someone do this foolishness of spending more money on litigation than settlement. It is because what is at stake is not Rs.10,000 for the companies but the potential of so many others going to the Court and pulling out crores. No employee can ever afford to pay a lawyer and fight up these companies individually. So these companies take this chance and 99%  of the times, they get it correct. However, with these employees having nothing to lose, this time it can be different if they come together and the greatest risk of such action is against indigo.

Pilots think its payback time on the CAR on the Notice Period. Yes, its pay back time, but it is not as easy as they think it is. One of the pilots tweeted, monthly payout multiplied by 6 or 12 and wrote, will airlines be able to shell out 25 lakhs? If law was that easy, you wouldn’t have needed lawyers. Just because the CAR is there or you have it in your contract doesn’t mean you simply multiply a figure and the company will dole it out to you. You got to fight, a fight you will remember. But for once, no pilot is going to be able to afford a lawyer who will extract it out of the company and they have no choice but to come together.

The best available strategy for Airline companies

The best strategy for companies now is not to fire certain classes of its employees to avoid them grouping up and suing them. For eg. The pilots. Why fire thousands and take the risk of a potential claims. Just show some carrots. Trying to keep the pilots ’current’ will be on top of that list. Pilots will be willing to take home even one fifth of the salaries and still be employed than sit home with no prospect of any other employment. In this market, each company can easily retain 5 pilots for the cost of one and the avoidance of the risk of potential group claims will make it a lot more feasible.

Its not just the Virus, it’s the Economy

As a lawyer, we have our hands on the pulse of the society just as a doctor has his hands on the pulse of the patient. Indian Aviation anyways was looking at a potential consolidation, but the virus now looks potent enough to clean it up totally. The problem right now is not the virus, it’s the economy. Economy in general is so badly hit that people have no monies to spend, they have only moneys to survive. The mutual funds and equities are as good as papers, and it is the owners of these papers that formed the bulk of customers. With or without a vaccine, with or without a cure, it will take easily 2-5 years for this bracket of customers to again have ‘money to spend’. All industries are looking down, salaries will be cut across all industries. This also has taught some important lessons about savings to the people and no one will be wanting to spend money than save for future. We are not looking just at virus to go away, we have to wait for the economy to stand up on its feet. It’s a long way, so long that it may be difficult for aviation companies to survive.

Aviation Safety will be at its weakest

With the pressures on all cost centres, the easiest places to cut costs are areas which fliers don’t see. For eg. Engineering. No passenger ever gets to know if there is a crack on the tyres or not. Already, most Airline Companies are using Cat A Engineers than have the other categories that are bigger cost centres. The pilots are coming after a gap, the monsoons will be out in all its glory and the worst is that the pilots are going to be in extreme mental stress owing to their own finances.

I always fought for Aviation Safety. I thought of taking along the pilots because they were a major stake holder. Every time, there were a few vicious ones who blocked it and a silent majority who closed their eyes. Union was not something that I wanted to protect me but it was something that would have protected the interests of the pilot community. Many say that Pilot Unions are useless in this environment, but it is now that the pilots could have taken full advantage of having a Union. It could have given them a chair on the table that decided the future, it could have eased them the pain of running around to make groups etc.

Irresponsible behaviour should pay its costs

I have got so many e-mails from pilots and I have refused any free service that I used to do a few years back. I still know how many pilots jumped the notice period with my help and didn’t even have the decency to thank me. This time I have decided not to give any of them any free service. I spoke up for a Union, not for me, but for them. They refused to stick their neck out, and now they need to pay the price for such irresponsible behaviour.

The question that came up the most was whether imposition of leave without pay (LWP) was legal or cutting salary was legal. The answer to both is that it is absolutely illegal. The company may have the right to terminate, but it doesn’t have any right to reduce salaries or impose LWP. Can you sue? Yes you can, but do you have the balls to do it…..????