Privatisation is the only way to end Air India's woes

New Delhi: The history of Air India and its mismanagement by incumbent governments is well known. So are multiple, half-hearted attempts by successive civil aviation ministers to sell it off to a private enterprise. Thus, it came as no surprise when its current master, Ajit Singh, hinted at Air India privatisation over the weekend.

With barely six months left for this government, Singh probably thought he could safely stir the privatisation pot with minimum risk to his ministership. He obviously is well aware that his time in office is too short to see any such proposal through. So whats the harm in uttering the ‘P’ word and wait for reactions?

In less than 24 hours, Singh gleefully went back on his words after violent reactions from the Left and even from BJP. He said there was no proposal at any level of the government to privatise Air India at present. Well, it is about time this cash starved government began thinking in terms of a proposal because unless Air India is sold off to private enterprise, its days are numbered.

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Privatisation may not be the only solution to Air India’s woes but at present, it seems to be the only viable one. The most serious attempt at privatisation, which of course went kaput, was in 2000-2001 when two bidders had been shortlisted. The Hindujas were interested in both Air India and Indian Airlines (the two carriers which merged later to form the present Air India) while the Tata-Singapore Airlines combine was interested in AI. A change of ministers and global uncertainty after 9/11 in the US ensured that privsatisation was never seriously pursued.

[caption id=“attachment_1156849” align=“alignleft” width=“380”]  The national carrier is left with little arsenal to compete even in an expanding market. Flickr[/caption]

Now that Tata and SIA are back in the civil aviation market in India, perhaps this is as good a time as any to at least restart the privatisation debate. So why should Air India be sold off? Multiple reasons:

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1) Competition will anyway gobble it up: Even six months back, AI was happily declaring how its operational performance was improving and talked of a Rs 1000 crore EBIDTA positive (break even at the operational level) FY14. But things have changed dramatically since then. The four fold increase in seat entitlements to Jet-Etihad combine kick in by 2015, making some of AI’s overseas routes unviable. Only exceptions would be long haul, non-stop flights to Europe and Americas. As if this was not enough, the government is keen to do away with restrictions on domestic airlines flying abroad. This means the new Tata-Singapore Airlines combine could become a formidable opponent to AI in no time. In short, the national carrier is left with little arsenal to compete even in an expanding market with the might of a well funded Gulf carrier and an equally formidable Tata-SIA.

2) Government support uncertain: The Government may have promised AI Rs 30,000 crore in equity support over a decade but with its own finances in doldrums, where is the cash going to come from? Another Rs 20,000 crore is needed for sovereign guarantees for AI’s short terms loans. Already, almost Rs 3,500 crore equity support promised in the Budget for FY14 is not coming with the government itself starved for funds and AI may have to raise loans. Anyway, the government cannot be expected to fund AI in perpetuity, a viable solution must be found to its financial woes. The airline carries about Rs 45,000 crore in accumulated debt on its books, which includes debt from aircraft purchase, from banks and from sundry debtors.

3) Infrastructure already in place: What could be attractive to a buyer is one of the youngest aircraft fleets in the world, maintenance and ground handling infrastructure already in place, considerable pull of the Air India brand and lucrative overseas flying rights already in the airline’s pockets. After the hive off of two subsidiaries - one for maintenance and repair and another for ground handling - the staff on AI’s books has been halved to just 13,000 people. This means manpower to aircraft ratio of just 100 against the industry norm of 120-130. In fact, now this ratio is even better than domestic aviation industry star, IndiGo!

An editorial in the Indian Express says this morning that AI continues to lose money to the tune of Rs 11 crore a day, translating into a total drain of over Rs 4,000 crore. These losses are despite the government infusing Rs 16,300 crore in the last four years. “How much, then, will the proposed infusion till 2020-21 change the situation at Air India? This is a crisis of credibility as much as of finances and operations.”

An AI official told Firstpost that with more of its planes filled, better on-time performance and improvement in other parameters, AI is on its way to profitability. “And is privatisation the only solution per se to save AI? We have seen privatisation has not always helped matters…..we must first decide whether we need a national carrier. But a debate on privatisation is good, it should be encouraged”.

We have debated this enough, now is the time to act. Instead of another public debate over whether AI should be privatised or not, it is better to quickly take a decision to do so. There will anyway be problems aplenty even if a decision were to be taken.

Air India’s workforce, long used to sarkari culture, will need to put in a hard day’s work - something most Air Indians are not used to. Take this example: AI employees were entitled to ridiculous ‘passages’, which means free tickets for extended family members. So sons-in-law, brothers-in-law and even mother-in-law of an AI employee were entitled to free AI tickets. Only last year was this ridiculous allowance scrapped and free passages restricted to the employee’s spouse, dependent children and, at most, dependent parents.

Next, lets see who are the most trenchant critics of AI privatisation. The Left parties and affiliated trade unions - but they oppose any and every privatisation whether the PSU is loss making or not. They are best ignored. BJP and its allies are opposing because any major proposal by the ruling UPA must be opposed. Employee unions are opposing because they fear job losses - which private enterprise will tolerate sloth?

The question to be asked is not how to tackle this opposition but whether any interested party willing to buy into AI would also be keen to take on all the accumulated losses and massive debt on its books.

Instead of worrying about domestic opposition, the government should be thinking of making Air India attractive enough, financially and otherwise, for a suitor.