Desperate measures

Autonomy for Air India board is no longer a solution

Having come up empty in its disinvestment plans earlier this year, the government’s offer of quasi-Maharatna status to Air India and one-time sovereign guarantee of ~150 billion resembles the last throw of the dice in the gamble to enhance the national carrier’s saleability. The illogic of this position is hard to ignore. The Maharatna label implies board autonomy for profitable public sector undertakings. Air India, with accumulated losses of ~7 billion on revenues of ~22 billion and a debt burden of ~465.7 billion, does not qualify for this status on any key parameter. The plan to transfer about ~300 billion of debt to a special purpose vehicle creates only an illusory improvement to the profit and loss account, since the debt, whether on the books or off it, still has to be serviced. With financials like these, that too in an uber-competitive industry beset by rising fuel costs, board autonomy or lack thereof is unlikely to make a major difference.

Indeed, it is fair to say that since 2011-12, the government has been a relatively generous shareholder, infusing almost ~250 billion in equity, albeit to repair the damage wrought by forcing the airline into expensive aircraft purchases. Further, it is difficult to see how the board can inculcate the habits of autonomy when the chairman and managing director is an Indian Administrative Service Officer, and two of its members are from the ministry of civil aviation. As part of the move towards autonomy, the board has inducted four independent directors. Two issues arise here. First, only two of them have knowledge of the aviation business—Y CD eve sh war was chairman of Air India during 1991-94 and Ravindra Kumar Tyagi has some tangential connection to aviation as former chairman of Hindustan Aeronautics Ltd. The other two are Kumar Mangalam Birla, promoter of the diversified Aditya Birla group, and Syed Zafar Islam, a national spokesman for the Bharatiya Janata Party and a former investment banker. Businessmen like Ratan Tata and Rahul Bajaj had headed Air India (prior to merger) and Indian Airlines; Anand Mahindra too had been inducted on the board — all of it to no effect. Second, as company after company, from Satyam Computer to ICICI Bank to Infrastructure Leasing & Financial Services Limited, has shown, independent directors, however weighty their reputation, cannot be relied on to enforce the kind of hard decisions vital to turning around this ailing airline.

Finally, there are institutional issues. Revival is possible only if Air India ceases to be an airline for government servants and their families and if union power is curtailed. The airline is overstaffed but employee cutbacks are invariably fiercely contested. It is also unclear whether the airline has the wherewithal to attract managerial talent from the market. Both proved to be the high hurdles during the tenure of Rajan Jetley in the late eighties. Mr Jetley’s stint represented then Prime Minister Rajiv Gandhi’s experiment with some degree of managerial autonomy for what was then the country’s international carrier (Air India and domestic airline Indian Airlines formally merged in 2007). Mr Jetley, who was famous for jettisoning the trademark Maharaja logo, did streamline operations and helped Air India turn in a record profit of ~700 million in 1989-90 but the pressure of dealing with entrenched interests forced him to leave before his five-year term was up. As such, for Air India, board autonomy is no longer a solution.