Business

Say Goodbye, Finally, to Air India as We Know It

If Air India could have been turned around under the same system then it would have been by now. The real question is to what extent prospective buyers will be able to cherry pick the national carrier’s assets.

An Air India Airlines Boeing 787 dreamliner. Credit: Reuters

An Air India Airlines Boeing 787 dreamliner. Credit: Reuters

The government has, for the record, taken a decision to “divest” in Air India, and that too “in principle”. But what is clear is that it is willing to go the whole hog, privatise the national carrier by retaining a minority stake or not even that. All options are on the table and a committee headed by union finance minister Arun Jaitley is going to look at them.

The BJP-led government has been able to do this for several reasons. It has a clear majority in the Lok Sabha, is confident of political support across the country, does not have too much of a constituency among the airline’s trade unions (these will be the only groups which will raise their voices against any attempt at privatisation) and has at best only a pragmatic approach towards public ownership. Correspondingly, the national opposition is in disarray. The Congress, which has a legacy stake in the public sector, and also the Left parties which have an ideological commitment to it, are in dire straits.

The problem about Air India is not even its past, negative as it is, but the future. As for the past, it has huge accumulated losses of over Rs 50,000 crore, an equally gargantuan debt of about Rs 55,000 crore and an unbearable annual interest burden which eats up a fifth of its revenue. Naturally it is loss making.

If Air India could have been turned around under the same system then it would have been by now. In 2012, the-then UPA government approved a nine-year turnaround plan for over Rs 30,000 crore and put in an equity of Rs 6,750 crore. Plus, there was cash infusion to meet the cash deficit (simply not having cash to keep running from day-to-day) and guarantee for loans taken to purchase aircraft. Yet, there has not been any dramatic improvement in health.

As for the future, no one has any hope that the organisation can be turned around while remaining under public ownership. Its efficiencies are crippled by issues like staff attitudes, cumbersome procedures and bureaucratic hurdles. But even as it has fallen behind in the face of competition from private players, legacy pay and perks keep costs high. Thus, unsmiling customer facing staff and lackadaisical cabin crew get away even while earning very well.

Merger failure

One of Air India’s critical handicaps is the failure on the human relations front to bring about an integration of the two cultures that prevailed in the erstwhile Indian Airlines and Air India even a decade after the merger of the two. Air India had well laid out procedures but these have not been updated over time so that they are now a hurdle.

A key issue is the inability to pursue a proactive commercial policy and therefore deficit in marketing response time. Once a plane takes off without a bottom on a seat or with vacant space in the cargo hold, then it is potential revenue lost, like a hotel room remaining vacant for a night. Sharp discounting to at least cover fixed costs is vital. But there is the classical caution among marketing executives in offering discounts because of fear of “vigilance”.

A lot of Air India’s troubles can be traced back to government ownership, though there are many examples of public sector concerns running better than others. Steel Authority of India under V. Krishnamurthy could challenge Tata Steel on many operational efficiency parameters. Most recently, the pharmaceuticals company Bengal Chemicals has achieved a turnaround even as it has been earmarked for privatisation.

One reason why a clear-headed decision on Air India has been delayed for long is because politicians and senior bureaucrats are intrinsic stakeholders in it whose interest lies in letting things run as they are. The upgrades that are taken for granted, not to speak of delaying departure for a bigwig who is late, are far from unheard of.

Thus, a key logic for seriously considering privatisation is that Air India will not turn around so long as it remains in government hands. The other reason of course is why precious managerial and material resources should be spent in subsidising (that is what equity infusion to compensate for accumulated losses amounts to) something as non-priority as air travel. If the government has a rupee or a good officer to spare then surely those should go in supporting performance in areas like healthcare and education for the poor.

But even after a decision to privatise has been taken, it will be difficult to carry it through. The attractive assets that Air India has are the slots allotted to it under bilateral agreements with other countries, a reasonably young fleet, a few subsidiaries doing well and some prized real estate spread across the country. Against this, no prospective buyer will have an interest in most of the Air India staff or its loss making operations. An idea of the cherry picking that prospective buyers are likely to go in for can be had from the quick interest expressed by IndiGo in, notably, the overseas routes.

For privatisation to go through, at least three aspects need to be taken care of.

The government will have to take over a good part of the debt and also make possible an attractive voluntary retirement scheme for a good part of the staff.

Plus, there ought to be a comprehensive well worked out scheme to subsidise seats (directly or indirectly) on uneconomical regional routes which need to be serviced in order to promote economic development in these areas. The government has already moved in this direction and Alliance Air, the Air India subsidiary, is operating in this space. This is the one sphere where promoting air travel is a priority and privatisation of Air India should not be an issue. Any private airline should be able and find it attractive to participate in a well worked out scheme of this nature.  

In that sense, it is time to say goodbye to state-owned Air India but not to national priorities in air travel.

Subir Roy is a senior journalist and author of Made in India: A study of emerging competitiveness (Tata Mcgraw Hill, 2005) and the forthcoming Ujjivan: The microfinance frontrunner (OUP)