A FIGHT TO SURVIVE…….THE SURVIVAL OF THE FITTEST IS ALL ABOUT STRATEGY......
Aviation worldwide is bleeding, in India it has always been bleeding, just when the bleeding was slowly getting under control, the virus hit and now its an all-out war at survival. The Theory of the Survival of the Fittest will ensure the weak will perish. The whole idea of having laws and the willingness of people to abide by them is because it brought in the idea of ‘equality’ and under it the weak will be protected against the might of the strong. That is what we call ‘civilisation’. But Laws of Nature can hardly be replaced by man-made laws, and the natural instinct of animals (man is a social animal, the word social is thought to civilise the man) will rule supreme even in ‘civilised worlds’ and men will act like animals and the survival of fittest will hold true.
When we speak about laws of nature, it is barbaric too. The survival of the fittest also requires it to kill. The weak are left to die, but when the mighty fight each other they have no option, but to kill the other to survive. The Indian markets were not big enough for 5-6 players even before the virus hit and the bleed was mostly because of the fight between the mighty trying to knock each other out by a ‘price war’ for the cost sensitive Indian public. Now, this war will be even more intense, whether you want to fight it or not, you will be dragged there. There is enough water for only 2-3 players and it is foolish to think that 5-6 will survive on this. Every day the strong fail to eliminate the weak will decrease their own chances of survival. If all five survive on this water, before the drought ends, all will perish, but if the 2-3 players ensure the death of the weak, those 2-3 might survive the drought.
The Aviation Sector will open with restrictions. Delhi and Mumbai are in Red zones. Airlines will refuse to operate with these airports shut. Airlines are fighting the ‘middle seat empty’ rule. In all probabilities, the Airline sector will have their way with the Government but not with the people, its passengers. There will certainly be a demand to travel when restrictions go away but this is mostly of those people stranded here and there. Once they reach their nest, they are unlikely to fly again. Let’s take my own example, before the virus hit, I would fly Bombay Delhi sector morning evening. Just going to complete a job. Now with the quarantine rules for each state, there is never going to be a ‘one day job’. So, this rules out business / corporate travel. No one is flying on a holiday. No one is going to fly with a family. After the initial boom of relocation travel, the entire sector is going to go cold until a vaccine comes out. If Aviation sector has to pray for a revival, it should be to the god than to the government and the chances are the God might hear them before the Government does!!!! God might help the humankind by blessing someone to invent a vaccine than the government with money bags for bailout.
This is a one-time opportunity to observe a ‘strategic war’ in a highly competitive business. Why is it a one-time opportunity? It is because Indian Aviation is a gold mine for the one that survives. Indian Aviation bled because of too many players and was anyways going to see some consolidation. The Virus changed it all, no more consolidation, the weak will bleed to death and the one who survives can make up for all the losses because of a monopoly like situation. The post corona Indian aviation will not see more than 2-3 players. No business school could ever teach this kind of ‘warfare’.
A superficial look makes us feel SpiceJet is so much weaker than Indigo, but when you apply market realities, the judicial system etc a SpiceJet is not as heavy as Indigo and therefore, the risk would make them equals.
Bailout from the Government of India
The Aviation Industry is sitting with its mouth wide open to see if the Government comes out with a bail out package. The money that can be spent in a bail out for the Aviation industry alone can give waiver on ‘farm loans’ which is a vote bank in states that is going for elections. No Aviation company is a vote bank and no politician is ever going to be interested in it.
Government has given sovereign guarantee on many loans taken by Air India. The government had rejigged Air India to make it enticing for investors just before the virus struck. Air India is too heavy, the heaviest, in terms of dead weight that it carries in its ranks and It is doubtful any investors will walk in atleast for next 2 years. For the Next two years, Government has to run Air India. Government has to basically decide whether it will run the AI or use that money to bail out the other players. It is unlikely that the government will divert the money from running Air India to bailing out the aviation industry.
Competition when Government is in business
It is not government’s business to run business, but many governments do run businesses. Whenever the government is in business, the competition is always unfair. Take for eg. Air India. It has about 14% of market share and this is unlikely to change because it is compulsory for all government employees to travel by Air India both for official work as well as when they take Leave Travel Facility. The market share of Air India is unnaturally maintained by government orders and not by the ability of Air India to manage the business.
Who suffers the most? The other players in the market. Surprisingly, no one has ever attacked Air India. No one has ever challenged the government order requiring its employees to travel by Air India in sectors they fly even when there are other cheaper options available.
I had taken up this issue with the Competition Commission of India. It was an open and shut case, but the experts there were unable to understand the basics!!! My case, based on Art. 14 of constitution is pending in the High Court of Kerala where the government lawyers are trying to tell the court that I was ‘forum shopping’. In any case, my interests is limited to exposing the fact as to how ineffective we are with modern laws and concepts and yet enact legislations. Take for eg. Competition law, the GST, Intellectual property, the new IBC, etc., each of these were a failure in implementation. We ask modern laws to be implemented by officers thinking like ‘feudal lords’ in the colonial era. The result for us is there to see. Look at Jet Airways languishing in the NCLT with a Resolution Professional. The aircrafts it had would today be valued at one tenths the costs when it actually landed up there and now each of those expensive Aircrafts is bound to rust like those kingfisher jets. In other words, modern laws don’t guarantee outputs like we have in the developed parts of the world. The latest leak of gas killing a few in vishakapatanam underlines the fact that we are, where we were, in 1983 and not walked past an inch from that place.
So, if someone sees the laws on the books and papers, please do not get excited, consult an advocate who is in practice!!! He / She will tell you what it feels like going on the journey seeking ‘Justice’. It’s a marathon that many in this country cannot complete, forget winning.
Coming back to unfair competition, look at the so called Vande Bharat Mission. It is not ‘evacuation’ of Indian Citizens taking place under the mission, it is just that the government is ‘facilitating’ movement of Indian Citizens who are willing to pay for their tickets. Take a look at the ticket prices, the tickets on those routes were available for half that price on any of the airlines just before the virus struck. The Government is allowing only Air India to carry out the ‘evacuation’ till date, which means that the government is using its powers to ensure that it is only a government company that will benefit and it will through out competition merely be flexing its muscles. No other player has ever raised its voice and it is neither surprising nor shocking. Raise your voice and drag yourself in the Indian Judicial setup for the rest of your life. Vijay Mallya is a great example. When you do wrong, learn to be quiet. If you raise your voice to however dirty an act of the government, you will be punished in such a way that you will be made an example for others!!! Make noise and all that government has to do is call for the account books and there you can be heaped with tons of criminal charges which they can ill afford now. So everyone prefers to be silent.
Now, a quick analysis of the state of each of the Airline Companies that existed before the virus.
Go Air
The size of this Airline could have kept it afloat, but its account books are horror book. This could be the first Airline to fall. This is one company that has not paid its employees and the employees are only talking in hushed voices. The fact is now it is hope and fear that is letting this company survive. Even after Aviation opens, this company has not much of oxygen left and this will go the Jet Airways way the fastest.
The employees are already surviving on their savings. Not one single employee is in a position to fight litigation. Do they stand a chance? The Airline and its promoters are banking on their slightly better position in a legal fight. Employees are silent hoping that their not taking salary will give a fighting chance for the airline to survive, they are utterly mistaken, this money is going to be their litigation fund to take care of any employee / creditors approaching the Judicial system.
For the situation the employees are in, they have nothing to lose, the only chance they have is to launch a legal attack on its promoters. Just a look at the letterhead of Go Air will show up all the connected companies, some of which are in good shape. For eg. Britannia. The accounts of Aviation companies, if pulled, is more likely to find diversion of funds. Find a good Forensic accounting fraud investigators and go through the accounts and it can be pulled out. Use the same Judicial system that is exploited by the financial power and might of these companies and pin them down. The fear has to work on them too, not just the employees. The employees now have nothing to lose, but the promoters have tons of other businesses to lose. Go for the jugular. This was my advice to the employees of Kingfisher and later to Jet Airways. It didn’t happen then and I do not think it will happen now even if circumstances are completely different.
In litigation, the person who has nothing to lose has everything to gain. In that sense the employees stand a better chance because the promoters have much at stake. The Go Air employees have their route clear and cut out. There can be no exceptions, no one can afford to wait to take a free ride on someone else’s back. If they need to do this, the only way they can afford is if all of them come as one, collect a small amount from all and set up a litigation fund to breathe down the neck of its promoters.
Air India
While most aviation companies go by market forces and reduce salaries, Air India being the State cannot do so just like it cannot terminate its cabin crew after they attain a particular age. The essential employees of Air India are on contracts and the dead wood is on employment and that is a very big challenge not just for Air India but also to anyone who was thinking to bid for this very attractive asset. The Air India Union has also approached the High Court of Bombay challenging the pay cut and in all probability the Court, even if it takes time, will hold the pay cut as ‘illegal’. While market forces allow private companies to be flexible, being a ‘State’, it is not possible for Air India. So whether competitors are paying its pilot a one lakh salary, Air India cannot change it because of the rules that govern it. The government revenues are going to be reduced by half atleast with a majority of businesses filing loss accounts and this will continue for next 2-3 years. The Employees of Air India should consider themselves lucky if the Government decides to keep it alive for 2 years. Its size, its account books, its policies, its work ethics etc. nothing would allow it to survive in this market, what decides its life is ‘government decision’. This is an airline purely at the mercy of the State.
Vistara
The size of this airline is just perfect for it to survive this market. It is backed by TATA and Singapore Airlines. TATA has the trust of its employees. This was anyways a struggling airline prior to the virus hitting the market because of the unfair playing field. This virus suddenly gets the playing field level for all players and now it is sheer ability to survive and there is no better combination than the TATA and Singapore Airlines Venture. This Airline will definitely take off in the market post the virus era.
Air Asia
The Air Asia and TATA combine could be a life saver, but the future of this Airline depends on the fortunes of Air Asia. The TATA’s usually wouldn’t let go its investments without a fight, but post covid world, this Airline could see the exit of Air Asia and a take-over possibly by Vistara. However, if left to fight out for itself in this market, this Airline cannot survive for long.
SpiceJet
Even during lockdown, this airline continued to make revenues by flying cargo. It definitely has connections with the political power centres, but this is the era that will not let your connections alone save you. It has a fleet of about 100 aircrafts without counting in on the 737 MAX that are grounded. Of the 100, about 30 of the aircrafts are the smaller Q 400. It will have to chop off some jobs to survive and its survival depends upon how it achieves this without too much of litigation. SpiceJet is the first to decide that it will pay its pilots a lakh and its first officers about 50K. It clearly knows ‘fears rule the Indian skies now’. So in a way what Spicejet has done is that instead of firing its extra resources, it is now employing 3 resources at the cost of one. As a strategy it is poised to play a mind game with its employees and so far it has succeeded tremendously. I believe that even this pay package announced for its pilots and first officers is only a ‘trial run’ to see if there is resistance. There has been no resistance and I see the possibility of SpiceJet employing its captains at 60k and FO’s at 40k. If spicejet succeeds in ensuring minimal employee unrest and carefully plans the pink slips, it can survive the employee onslaught that is quite a possibility at Go Air. Compared to Indigo, SpiceJet will have to cut out far lesser pink slips.
Many of SpiceJets lessors are also checking its financial health. In a way it is a boon for SpiceJEt because if any of the lessors decide to take back its aircrafts, it will again benefit SpiceJet. SpiceJet doesn’t need these many aircrafts and if someone take it away themselves, SJ saves a ton of money in operational costs. With its hold on the political power centres, it can even dictate terms for these lessors to take back aircrafts.
The advantage SpiceJet gets if it takes any longer for the market to revive is the fact that all its new aircraft orders are the 737 MAX, which will not see certification anytime soon and possibly never. If it never sees that possibility, SpiceJet will be in a better condition than Indigo.
The fear of its employees, the possible recall of aircrafts by lessors based on its financial strength, the orders being placed on Boeing 737 Max certainly gives advantage for spice to survive. If anyone threatens, Spice will land where Jet Airways are and it will be not in the interest of any creditor and therefore, Spice could survive this virus from this angle. The abilities and skill sets of the strategy team at Spice will decide if this airline will survive or not.
Indigo
No doubts it is sitting on a mountain of cash, and this becomes its biggest enemy. Every creditor is aware that it can have a swing at this pie and everyone will take that chance. A creditor will think twice before hitting SpiceJet, but will never think even once before it attacks Indigo.
It has about 250 aircrafts in service, too big a number for this market. It has plans to open up with about 50 aircrafts. The bench strength is too much and the bench costs too much for indigo. It had a change of ‘heart’ which in my last write up, I said it was not the heart but a strategy. I am proved right because indigo again decided to cut pay and follow SJ. Indigo will have to fire its employees. SJ can employ 3 or even 5 in place of one employee and still survive, Indigo can’t. it has to fire in droves to lighten its weight. The ones who are fired have nothing to lose and can easily turn into ‘nuisance value’ and they will approach legal system. They will litigate to get whatever they can out of indigo because it has cash. So indigo runs risk of a certain employee litigation. If the ones who are fired delays, they will lose and so litigation will be almost immediate headache for indigo.
It has 500 aircrafts to take delivery and that too from Airbus. They have no way to cancel without losing money. This is a long time risk for Indigo.
Indigo’s success is the combination of Bhatia and Gangwal. That is not anymore the case. Bhatia is fishing in Australia. If he thinks he can manage there just the way he managed India, he is going to be very wrong and he will realise it himself. Bhatia fishing alone is an indication that he is shifting his focus. The bad blood had spread and his heart is no more on indigo. This infighting will self-destruct indigo, its only a question of time.
The size of indigo requiring massive cuts in employees, the money in its coffers, the large orders on its books all go so much against indigo and in times like this, even a weak SpiceJet if it manages its risks better has a fine chance of survival.
Business strategy this time requires a street lawyer
Probably for the first time, the Strategy requires the greatest input from the legal side. The number crunchers are always available, but here we have a situation where you also need to survive the Indian Judicial System. Aviation now requires a skillset not readily available in the market. It requires someone who know and understands Aviation, its regulations, its technicalities, the labour laws, company laws, foreign exchange regulations, criminal laws etc. Right now, its not the arm chair experts sitting in air-conditioned offices that is required, what the team will need is a street lawyer. The one who knows not just the law but how the system works. When I say the system, its not just the courts but all the possible authorities. The Writ Courts (the High Court and the Supreme Court), the labour courts, the company law Tribunal, the SEBI, the DGCA, the Police, the Magistrates etc. and how these authorities function.
The absence of organised union, without doubts is working in favour of the Aviation Industry as of now. But this time the situation is so different because people have nothing to lose and they might tend to act differently.
The aviation industry will have the might and strength, they will have the signed cheques given by the pilots which it can use to threaten the pilots of criminal prosecutions, but what if these pilots too decide to turn around and sting the promoters and directors in several interior places where they claim to have issued the cheques as security and start criminal proceedings against the directors. The ‘nuisance value’ strategy use in the judicial system can cause severe stress to the mighty and the powerful. The Judicial system has the ability to grind people caught in it.
Many pilots are now thinking the DGCA CAR on notice period saves them. No, let me be blunt. It doesn’t save them. If pilots ever think that their contracts, labour laws help them, they are mistaken. I can easily write a book titled “100 ways to fire a pilot without paying a penny in termination benefits” and that should open the eyes of these pilots to their vulnerability. I strongly wanted these people to organise themselves and for a Union, but that was way back in 2018. Would I recommend it now? No. if at all a Union is possible in the changed scenario, it is possible only on the ‘brotherhood among its members’. The pilots should be willing to follow a few basic principles without compromise and its is only then a Union can even be formed. But it would be foolish to expect all pilots to agree to these basic principles when they too are playing a game of ‘survival of the fittest’.
Right now, the people have to just get into groups not for the Union, but to make them a formidable force to fight for whatever they are entitled to from these companies. To create a litigation fund that will help them fight those battles.
DGCA has always helped many companies deal with pilots who needed to be ‘fixed’. Pilots cannot lose their sight of how the DGCA can work with the managements to screw their happiness. You need skill to isolate rogue officers in the DGCA and attack them legally. It’s going to be an all-out war for survival. Unless DGCA officers are isolated and held accountable for their misdeeds, these officers will continue to help companies. Any strategy to survive will require going after individual DGCA officers for their acts and omission to act.
I got involved with Aviation because of my association with the compensation claims of the passengers. Recently, I got the largest ever verdict in ‘death compensation’ for one of the victims of the Mangalore Air Crash. This is the largest compensation ever granted by the Indian Judicial System. I had to work on it for 10 long years, but at the end of the day, there is a satisfaction that the system responds if you keep persisting with it. The DGCA counsel in Delhi High Court once told me that they consider me a ‘Don of the Pilot Mafia’. I repeatedly tell them, I am no don and there is no mafia, but just a few herds of sheep. My involvement with the pilots is only because I thought they were important pillars in Aviation Safety and Safety can be enhanced by their participation. They always had a fear, they believed Judicial System is slow. I went after the FDTL CAR only to prove that the System works, their fears are misplaced. As a lawyer, I always knew that getting a CAR overthrown doesn’t help because DGCA just has to enact another. It would be the Union that could make a difference, get a seat in the decision-making table, set terms. But it never happened and never will. When people think of only themselves, forget the duty towards others and find happiness in their possessions, they become blind to reality. They see what they want to see, they hear what they want to hear, they smell what they want to smell and when they reach to situations like these they should realise that they have to fend for themselves.
To those who think, I am looking at Aviation personnel as my potential clients, I always said, its too difficult. If I had even the faintest idea of doing that, I would not be using the words I now use. I only take about 5-6 litigations in a year and if I hit one target, I am done for the year. I have no plans of making an empire, make tons of money and not have quality time to spend. In my career as a lawyer, no client has come to me saying they do not have money. My clients are those who have money and find no use of it simply because they realise ‘peace of mind’ cannot be purchased with money. Unfortunately, they realise this towards the end of their life and I do not intend to make the mistake they made. Just like any other lawyer, I take up a matter if I like the subject matter and if it compensates for the time I spend. These write up is to make people understand where they stand. Many don’t want to accept reality, but this is what it is, whether you like it or not.
Many aviation journalists make statements that A will survive and not B based on superficial facts. The depth and spread of Aviation is so vast that many fail to take into consideration the under currents merely because the surface is calm. This is the most interesting time in Aviation. Its not going to be about brute power and might, it is going to be strategy. Whoever, understands the permutations and combinations, whoever is the most flexible, whoever has the situational awareness will win this battle and survive to tell the story…….