Govt has pumped in Rs 22,280 cr of taxpayer money into Air India, but where is the plan to disinvest?

Of the Rs 30,000 crore planned to be spend on Air India's turnaround plan over a 10-year period, over 70% of the promised support been given in first three-and-a-half years itself

Sindhu Bhattacharya December 09, 2015 14:10:02 IST
Govt has pumped in Rs 22,280 cr of taxpayer money into Air India, but where is the plan to disinvest?

New Delhi: Me and you, this country's tax payers, have bankrolled the government's bailout of Air India (AI) since 2012 when a turnaround and financial restructuring plan was approved to save this ailing airline. The turnaround plan itself was needed because of a previous government's decision in 2005-06 on purchase of 111 aircraft, which left the airline gasping for breath under insurmountable debt. But then that is another story all together.

Govt has pumped in Rs 22280 cr of taxpayer money into Air India but where is the plan to disinvest

PTI

Since April of 2012 till now, the exchequer has provided a whopping Rs 22,280 crore equity support to Air India, as per a written reply in the Rajya Sabha by MoS Civil Aviation Mahesh Sharma. That is well over 70% of the promised support that turnaround plan (TAP) envisaged over a 10-year period since total promised money for Air India's turnaround is Rs 30,000 crore. Why has over two-thirds of the promised money been given in the first three-and-a-half years of the TAP is a question begging an answer.

But look at this statistic another way. The government has pumped in Rs 530.47 crore per month on an average into the loss-making national carrier under various heads in the last about 42 months. Of course, the airline in on course to declare a tiny Rs 6 crore operating profit after a decade this fiscal, and the government has been at pains to explain how Air India's financial and performance parameters have been improving.

But this still begs the question: Why is government still in the business of aviation when all it has to show for hand-holding Air India is crazy amounts of cash funding, incompetence of babus and others running this sarkari airline? Should disinvestment in Air India not be one of this government's top priorities? Specially now, when the draft civil aviation policy proposes ambitious measures to not only mandate private airlines to connect remote areas within India but also a detailed regional connectivity scheme. Keeping Air India a government owned airline when private carriers will have to also share some of its social obligations makes even less sense than before.

When the new draft civil aviation policy was released last month, it came as a surprise to many that Air India did not even find a mention in it. Does the government have any intent at all to disinvest this loss making mammoth white elephant? Civil Aviation Minister A Gajapathi Raju later told CNBC-TV18 that he was open to looking at any proposal including disinvestment of Air India. But without any serious intent, these remain mere words.

Earlier this year, the Heavy Industries Ministry had categorised Air India as "sick" since it continues to accumulate losses continuously since the erstwhile Air India and Indian Airlines were merged in 2007.

Similarly, Air India officials had indicated that the airline was seeking a mid-term correction in its Turnaround Plan as some "assumptions" made in the plan were no longer valid. The corrections pertained to AI's inability to meet some milestones which were set out in this plan, which the airline wants it to be pushed forward now. A senior airline official had claimed then that all operational milestones set in the TAP have been met and that the tweaking pertains to things like monetization of properties, fleet expansion etc.

We remain unclear if SBI Caps, which was initially tasked with forming the TAP and was earlier this year asked to rework it with new milestones, is also looking at any possibility of disinvestment of government's stake in Air India.

Like we said earlier, there have been enough discussions internally within Air India and among stakeholders over this issue, and the airline's independent directors have already made it known they would favour disinvestment by the government at the earliest. Internal discussions have also centered around divesting government stake in the two subsidiaries of Air India - the ground handling subsidiary AIATSL, and AIESL the engineering subsidiary.

Here's what AI wanted to be altered in the TAP as per a senior official:

Monetisation: The airline is supposed to be raising Rs 5,000 crore by monetising properties it owns in India and globally by 2021-22. The official quoted earlier said this target is not likely to be achieved since the Ministry of Urban Development has put several end-use clauses. Now, the Union Cabinet has finally approved sale of four flats which the airline owned on Peddar Road, Mumbai for about Rs 90 crore. And another small property worth about Rs 19 crore in Coimbatore may also soon get the Cabinet's nod for selling. But proposals for two other properties, at Chennai and Kolkata, are not even ready for the Cabinet approval. And the mega assets - properties in Vasant Vihar and Baba Kharak Singh Marg in Delhi - are mired in problems such as legal issues over title deeds and ownership issues. The asset monetisation plan had envisaged Air India raising Rs 1,200 crore in 2013-14, Rs 2,000 crore in 2014-15 and Rs 1,800 crore in 2015-16. It remains on paper as of now.

Fleet expansion: As per TAP, AI should have had 72 narrow body aircraft in its fleet by now but has managed 62 so far. Air India has been looking to lease 19 aircraft of which 14 may arrive only by 2017. Not only is the fleet expansion plan way behind schedule, AI also faces numerous problems such as the current fleet of aircrafts which are at present old and require frequent maintenance. At any given time, 9-10 aircrafts were on the ground for maintenance, giving the airline an effective narrow body fleet of just about 52-53 aircraft daily till last month. The situation has improved now with all 62 available from this month.

Fuel prices: Believe it or not, the TAP has taken it for granted that crude prices would remain around $45 a barrel - never mind price fluctuations for any reasons what so ever. Though crude is quite favourable now, it was much higher in the previous years. The airline wants compensation for this variation in crude on which all other calculations of topline and bottomline were made in the TAP.

As per Mahesh Sharma's answer in the Upper House, Air India has made "substantial" improvements in its financial performance. The main areas in which the company has registered improvements in FY 2014-15 compared to FY 2011-12, according to the minister, are:

1) Operating Loss consistently reduced since merger and stands at Rs 2,636.19 crore in FY15 vs Rs 5,138 crore in FY12.

2) Net Loss was down 22.5% to Rs 5,859.91 crore in FY15 vs Rs 7,559.74 crore in FY12

3) The airline turned EBIDTA positive by Rs 337.77 crore in 2014- 15 vs negative EBIDTA of Rs 2,236.95 crore in 2011-12.

4) Total Revenue increased 40%, from Rs 14,713.81 crore in 2011-12 to Rs 20,606.27 crore in 2014-15

If Air India continues to improve its financial and operational performance, it is good news. But there is little chance of the airline wiping out its accumulated losses or paying off the debt pile on its own.

This is what the government needs to think over - is it going to write off the debt which could be anywhere close to Rs 50,000 crore? There have been several suggestions from aviation industry experts and even independent directors on Air India's board which can be examined by the government if it is at all serious about not wasting any more of taxpayers' money on Air India.

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