The Hindu Business Line : Relief for airlines

Airline companies in India have been doing their best to provide excellent connectivity and the competition in the skies has, over the last decade or so, given air passengers in India the benefit of lower fares and created a vibrant domestic aviation industry.

However, given the current economic downturn, they are losing a lot of money and had the oil companies been unwilling to extend credit there is every possibility that they would have had to stop operations. They have such poor balance sheets that no private or public institution is willing to invest in or lend money to them.

But the public sector oil companies are being forced to extend unsecured credit to companies with poor balance-sheets. The least that the government could have done is to give this unsecured loan as a convertible debenture, so that the huge risk that no one else is willing to take, and which the oil companies are taking, is not without its reward.

The country cannot finance private players that are not getting finance from other entities without a proportional potential reward. As many more such bailouts may become necessary with the recession in the West beginning to impact different sectors, it may be wise not to make the government directly or indirectly lend to high-risk private sector companies without adeuqte rewards.

Manikam Ramaswami Chennai

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