Breaking heads over ailing Air India
The government seems to clutch at the hope that despite being lumbered with a debt of about Rs 48,877 crore (Rs 17,360 crore aircraft loans and Rs 31,517 crore working capital loans). At the end of last March, Air India can be rescued from oblivion by selling 49 per cent of the equity to outsiders. Hard-headed realists are convinced the national carrier’s only destiny is to disappear.
IndiGo and the Tatas are said to be interested in buying shares. Other possibles mentioned are Turkey's Celebi Aviation Holding, Bird Group, Menzies Aviation Plc and Livewel Aviation Services Pvt. Ltd. We have been here before. Singapore Airlines was once in the bidding but, sadly, we had to beat a humiliating retreat in 2001. Air India had hoped then to recoup its $70 million debt and raise money for the long overdue upgrading of its fleet of 27 aircraft through partial privatisation. But, Singapore’s veteran Lee Kuan Yew felt there was “too much vested interest” for a slight dilution of ownership to make any difference to operations.
SIA could not “change the culture” of the airline, he explained. “It was too ingrained”. There would be “too much opposition all down the line, within the company and in the government, in the civil aviation department and ministries” to drastic reform “because this is the airline that services them.” Singapore’s then president, the ethnic Indian S R Nathan, agreed that no airline could reserve jobs for a retired employee’s dependents or allow retirees to travel free. Buying some equity would be throwing good money after bad.
Four years later, Lee was sorry when a wholly owned subsidiary of the Civil Aviation Authority of Singapore withdrew from a multi-billion dollar tender to upgrade New Delhi airport. Caas’s Indian partner, Bharti Enterprises, believed it could do the job in 50 months and promised to indemnify Caas from penalties should the work take longer. But, Caas insisted on a minimum of 70 months. Lee’s advice was that Singaporeans must learn to take more risks.
Even the recent controversy over offering 49 per cent of equity to private investors draws attention to vested interests that do not want a viable, professionally managed commercial airline. Although the junior aviation minister, Jayant Sinha, made the announcement, explaining that the airline would be split vertically into four different sectors to facilitate sale by the end of this year, strictly speaking, the 31-member parliamentary standing committee on transport, tourism and culture hadn’t cleared the sale. Nor has it withdrawn its January 7 draft report saying this is not an appropriate time to divest the government’s stake. The MPs wanted Air India to be given at least another five years to recover, and reportedly gave no fewer than 11 reasons why it should remain a fully nationalised undertaking.
In the committee’s view, the introduction of fresh equity as part of the turnaround plan was made on a “piecemeal basis” which obliged Air India to take loans” at a higher interest rate to meet the shortfall”. It must be admitted that most members of the parliamentary committee, including the BJP’s Rakesh Singh, officiating as chairman for Trinamul’s Derek O’Brien, want the report scrapped because they favour disinvestment. However, there are three objectors including Selja Kumari from the Congress party and Trinamul’s Arpita Ghosh. Their objections recalled Arun Shourie claiming that when privatisation was on the cards, a Congress MP told parliament that the cabinet secretary, India’s senior-most bureaucrat, opposed it.
Despite such individual reservations, the government can go ahead with its plans if it finds buyers. Given the Indian situation, it must also ensure that Air India’s 29,000 employees (including those working for subsidiaries and on a contract basis) do not have to worry about their future.
There is also a certain inconsistency about the government’s own approach. Although, it now seems prepared to sell the core airline business comprising Air India and Air India Express as one company and the rest – its regional arm, ground handling, and engineering operations – separately, this represents a complete volte-face from its previous stand. Earlier, the government had said that splitting Air India would decrease its total valuation.
Air India is not alone in its difficulties. Actually, losses are common throughout the airline industry. All commercial airliners are expensive to maintain and burdened with heavy debts. Maintenance and repairs are also expensive, as is fuel. So are training pilots, crew and engineers. Airport charges and parking slots are expensive. These costs have to be paid regardless of occupancy or load factor, and airlines must also compete with rival carriers.
But, Air India is probably the only national carrier to have fallen so low from such a high standard as a global market leader. Other airlines facilitate business, investment and tourism. Air India can hardly boast of any first or even business class passengers who pay their own fares. Most travel on complimentary tickets.
India’s complex regulations, poor infrastructure and the insistence on also flying non-remunerative routes add to its problems. Reports indicate that Indigo is the only Indian commercial airline to make a consistent profit, although Jet Airways makes money from time to time. Many others have collapsed. Kingfisher makes international headlines.
However, Air India has lost money consistently. It incurred huge debts in hard currency mainly to buy new aircraft. It has become an international byword for inefficiency and poor service. A bloated work force of more than 27,000 employees means a huge salary bill and also an aggressive union that fights attempts to reduce overtime payments or cut numbers. Repeated massive losses force the government to pump in fresh funds every so often.
Every government in New Delhi has periodically talked of selling off Air India over the last 20 years, and stopped short of the brink for one reason or other. Now, Narendra Modi seems to mean business. In theory at least, his government has eased investment norms, allowing overseas partners, including airlines, to own up to 49 per cent stake in the national carrier. It says it is prepared to forgive some of the airline’s debts, and it also promises to take care of Air India’s inflated work force. We are promised all this will be completed by the “end of 2018”.
But, will it happen? Can it happen? Lee Kuan Yew’s prescription is predictably drastic. He would “let Air India die naturally” he said instead of breaking heads and making life miserable trying to revitalise it. It would be better to start a new airline and cater separately to VIPs instead of allowing politicians and bureaucrats to abuse existing privileges. “You can have Indian Air Force One, Air Force Two, Air Force Three for the president, prime minister, other ministers and officials” he said. “The difference is that a dynamic airline also helps the economy.”
LEE Kuan Yew’s prescription is predictably drastic. He would “let Air India die naturally” he said, instead of breaking heads and making life miserable trying to revitalise it.