After a turbulent and tumultuous ride through the insolvency and bankruptcy process, India’s oldest private airline – Jet Airways – saw some hope with a potential investor coming through. The USD 136 million resolution plan to revive Jet Airways, as proposed by the Kalrock Capital – Murari Lal Jalan consortium, was accepted by the Committee of Creditors (the “CoC”) and as per law, referred to the National Company Law Tribunal (the “NCLT”) for final approval. The airline that once boasted of a fleet strength of 119 aircraft with more than 16,000 employees hoped to be revived but the resolution plan is yet to get the final approval from the NCLT and the main point of contention hinges on a key item, namely: slots.
A slot is a 5-minute time window assigned to an airline that allows for arrival or takeoff at a particular airport. This becomes extremely important as most passengers choose flights based on price and schedule and the most coveted, high yielding business passengers, choose flights based on schedule alone. Good schedules are enabled by access to peak-time slots. For example, an early morning departure and a late evening arrival is conducive to the business traveller. The lack of ideal slots impacts yields, efficiency and competitiveness on a route wise-basis and profitability on a network basis.
Slots and slot allocation traces its history back to the 1970s. At that time, the International Air Transport Association (“IATA”) devised a framework and rules which came to be referred to as the “Guidelines” for the allocation of slots. This has then formed the foundation for slot allocation guidelines worldwide and are regularly updated.
For India, slot allocation now rests with the Ministry of Civil Aviation (the “MoCA”) and its affiliate organizations e.g., the Airports Authority of India (“AAI”), the Directorate General of Civil Aviation (the “DGCA”) and with the respective airports. The current slot allocation is done as per the slot allocation guidelines that were last revised in 2013.[1]
With regards to slot allocation, there are two key principles. Namely, historicity and the “use it or lose it” principle. Historicity is an established guideline that mandates that once an airline operates certain slots, it almost always gets similar slots in the upcoming schedule – to ensure stability and reliability; the “use it or lose it philosophy” mandates that airlines must fly eighty (80) percent of the allocated slots during the schedule period of six (6) months or risk losing them.
Interestingly, the slot allocation guidelines, detail that in case an airline were to lose its operating license, its slots revert to the slot pool and are reallocated. Further, in case of bankruptcy (or similar) proceedings, provided the authorized representatives of the airline have promptly entered into dialogue with the slot coordinator to “disuse their future intentions for the slots, the slots may be reserved by the coordinator for one month pending reinstatement of the airlines operating license of a formal takeover of the airlines activities.”
More importantly, “If dialogue has not been initiated within a reasonable deadline set by the coordinator and if there is no legal protection linked to bankruptcy, then the coordinator should re allocate the slots”. The question that arises is then can the moratorium issued under the IBC be construed as being the “legal protection linked to bankruptcy” as envisaged under the Guidelines.
As the India market went from strength to strength in the last decade, expansion for some airlines was limited because of non-availability of slots. The grounding of Jet Airways in 2019 presented a scenario that competitors could only dream of. This was both due to the size of Jet Airways and its network structure which had significant metro presence including 280 slots of out Mumbai and another 160 slots from Delhi – the two busiest and largely slot constrained airports in the country. Indeed, as Jet Airways faltered, one of the first items discussed on how the market would change was the impact of the valuable portfolio of slots. Airlines were hungry to get a bite of the portfolio and thus, when the MoCA surmised that the grant of these slots, albeit temporarily, would be based on the addition of new capacity i.e., additional aircraft, airlines rushed to induct aircraft at the cost of complicating their own fleets. As such, now if these slots are snatched away, the airlines presumably will use the ground of having spent the huge cost of induction of these aircraft as part of their argument for slots not to be taken away.
In the case of Jet Airways, the revival plan is centered around the ability to retain their slots. Without those, Jet Airways 2.0 effectively, becomes a new entrant and will be relegated to the end of the line. In that case, it must build up the slot portfolio from scratch as opposed to getting a viable portfolio of slots that enables a strong schedule offering from day one. It is only but natural that the incumbents are not too keen for that to happen.
The perspective purchasers are likely to put forth the argument that the MoCA had only “temporarily reallocated” these slots and has already indicated that the Insolvency and Bankruptcy Code 2016 (the “IBC”) provides for a moratorium while bankruptcy proceedings are ongoing and thus the airlines slots automatically are protected under the IBC. The MoCA on the other hand has allegedly filed its reply inter-alia stating that slots were never the “property” or “asset” of Jet Airways and thus, could not have been subject to the moratorium or to the bankruptcy proceedings.
The contentions will also hinge on historicity and the “use it or lose it” principle. In both cases, Jet Airways has nothing to show – because it has not operated a single flight in the preceding 23 months.
The fight is also about the current market reality which requires one less airline competing. Failing that, the market simply cannot absorb the capacity that is lined up. Thus, slots are as much about keeping competition out as they are about building a better product. Moreover, the resurrection of Jet Airways has a direct impact on the ongoing sale of the debt-ridden national carrier, Air India.
While it is difficult to provide exact details of the ongoing proceedings in the NCLT without access to filings made by the relevant parties, it is safe to conclude that the final call on the slots will be taken in the courts.
It was widely reported in the media that as of the last hearing of the matter before the NCLT, the Kalrock-Jalan consortium has sought the creation of a “task force” to explore the idea of allocation of slots and traffic rights to Jet Airways on principle of historicity. Whether this will be done and how India’s first airline bankruptcy proceedings pan out remains to be seen.
[1] https://www.civilaviation.gov.in/sites/default/files/moca_003128_0.pdf
