Govt has no business to be in business: Sell off Air India or shut it down

Is the Modi Government trying to quietly shut down Air India after declaring it “sick”? There were vehement denials from officials in the ministry of civil aviation as well as senior airline officials this morning, with all of them saying no such move was afoot. Air India should have either been sold off or shut down long ago - it appears to be lurching from one financial crisis to another. Now is as good a time as any for the Government to take a bold decision and get this ailing airline off its hands. In his Budget speech Finance Minister Arun Jaitley did mention divestment of Government stake in loss making PSUs. If not sell off, the least this Government can do is induct professionals to lead charge instead of again entrusting the airline to career bureaucrats. The debate over Air India’s financials resurfaced after the airline was included in a list of sick units by Heavy Industries and Public Enterprises Minister Anant Geete while replying to questions on Parliament yesterday. Geete said that Air India has joined the list of sick central public sector enterprises (CPSEs). [caption id=“attachment_2061625” align=“alignleft” width=“380”]  File Photo/Flickr[/caption] A senior official of the DPE explained that a PSU can be classified sick if its accumulated losses in any financial year equal or exceed 50% of its average net worth for four years immediately preceding this financial year. “So by this definition, Air India is a sick CPSE. Should it now be referred to BIFR? We cannot recommend that, it is for the Ministry of Civil Aviation to take that call,” said this official who declined to be identified. Air India’s accumulated losses stood at Rs 5388 crore, Rs 5490 crore and Rs 7559 crore in 2013-14, 2012-13 and 2011-12 respectively. But a senior Air India official said AI cannot be declared sick or referred to the BIFR since it is already being revived as per a Turnaround Plan approved by the Central Government which promises equity infusion of over Rs 30,000 crore till 2021 in a phased manner. This official also pointed out that the money is to be released by the Government against pre-determined milestones such as on-time performance, passenger load factor, aircraft utilisation and reduction of cash losses so the airline is accountable in multiple ways. This is where the catch is: though the airline says favourable crude oil prices have helped it reduce losses this fiscal, it probably has not been able to meet all the other benchmarks for earning the full equity amount the government has promised it each year. Besides, it continues to lose anywhere between Rs 12-15 crore a day and the total debt on its books is close to Rs 47,000 crore, according to another senior airline official. A piece in Business Standard recently pointed out that despite the government pumping in more than a third of the over Rs 30,000 crore , the turnaround expected in 2018 seems a distant dream. Some of the targets for 2013-14 fell woefully short, and Air India’s net losses for the fiscal touched Rs 5,400 crore - way above the target of Rs 3,989 crore. It also missed both its operational profit and revenue targets by a long mile. The Centre for Asia Pacific Aviation (CAPA) ha said that if things continue unchanged, Air India will lose at least $1 billion annually from 2016. But Air India has other arguments to plead its case against any move to close down: it accounts for roughly every fourth aircraft in the Indian aviation market and a closure could spell disaster for an already ailing aviation sector. It carries about 50,000 passengers on any given day and generates about Rs 19,000 crore in revenue every year. Besides, since the entire aviation industry is in deep losses (except for two airlines) why should only Air India be singled out for referral to BIFR? Instead, the airline has been pleading with the Government to infuse more than the already promised equity by pointing out that the Turnaround Plan was based on certain assumptions which no longer hold true (like crude prices and rupee-dollar exchange rates). One of the officials quoted above said the airline has already asked for another Rs 900 crore in equity support, over and above Rs 30,000 crore under the plan, for 4 years beginning in 2012-13 and ending in 2015-16. Last week, Minister of State for Civil Aviation Mahesh Sharma had ruled out any immediate plan to either divest stake in Air India or rope in a strategic partner. He said the focus instead was on improving the airline’s on-time performance.