 "The Mallya lesson for Ajit Singh: Nobody will buy Air India")
It took just 24 hours to bring to closure Civil Aviation Minister Ajit Singh’s intent to privatise Air India. On Sunday, October 6, t he minister told _CNBC-TV 18_ that he was ready to privatise Air India if there was a political consensus on the matter. By the morning of October 7, after words of admonishment from the BJP’s Ravi Shankar Prasad and CPI’s D. Raja - presumably the pre-eminent voices of reason and consensus in the polity - Ajit Singh said that the Government had “no intention” to privatise the bleeding national carrier. A meek surrender under the circumstances.
Consider the facts. The national carrier has an accumulated debt of Rs 35,000 crore. Air India loses an estimated Rs11 crore every day, or Rs 4,000 crore per year. This is its sorry financial state a year after the Government announced a bailout worth Rs 30,000 core to be infused into the airline over nine years between 2012 and 2021. Of the total amount, Rs 6,750 crore was infused immediately. It doesn’t need an accountant or a management consultant to see the reality – pumping taxpayers’ money into Air India is throwing good money at a bad enterprise.
[caption id=“attachment_1082045” align=“alignleft” width=“380”]  pumping taxpayers’ money into Air India is throwing good money at a bad enterprise. PTI[/caption]
The trouble is that even if Ajit Singh were to persuade the BJP and CPI - why on earth does the Opposition want taxpayers to subsidise well paid employees and well heeled flyers – there will likely be no buyers for Air India. An airline with its nose under debt and running cash losses has no takers. Just ask Vijay Mallya.
In Air India, it’s about the fundamentals. It is grossly over-staffed. It has an employee-aircraft ratio is 241, which is much higher than the global average standard of around 175. Its staff, led by pilots, is overpaid by industry standards. According to some industry estimates, Indigo the only profitable airline in India pays its pilots at least 50 percent less on average. The workforce is prone to indiscipline, striking frequently, usually to demand higher wages in a sinking airline. Government rules and labour laws protect the entrenched staffed from retrenchment. No one would invest their money in Air India without a commitment from the Government to slash the number of employees.
Impact Shorts
More ShortsThere are other issues. The merger of Air India and Indian Airlines in 2007 has left several unresolved issues. There is no common Human Resources policy for the two sets of employees six years on. That has led to much friction. The airline is stuck with two very different aircraft manufacturers - Airbus inherited from the erstwhile Indian Airlines and Boeing from the erstwhile Air India. There are several models of aircraft from both manufacturers Most profitable airlines try to operate fewer types of aircraft, preferably from one vendor, to minimise maintenance costs. Air India does not. Its business model is flawed.
About the only attractive things about the airline for a potential buyer are the bilateral traffic rights (plus landing rights) that it owns as legacy - most are currently unutilised - and the considerable physical assets it owns, mostly real estate (including the Air India building in Nariman Point, Mumbai) but also aircraft (including some brand new Dreamliners).
Still, the Government would have to pay someone to buy Air India. In that sense, now may be the best time to sell since the Government has committed Rs 30,000 crore to the bleeding airline. Apparently (if Ajit Singh is to be believed) this is the last financial package for the airline after which it will have to fend for itself. In which case, it may also be the last chance to attempt a privatisation. In 2021, if Air India is still owned by the Government, and managed by babus, it will be fit for only one fate: closure.
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