Runway cleared for AI

The govt did well in ignoring the parliamentary panel’s views

The Union Cabinet’s decision to allow foreign investment of up to a 49 per cent stake in Air India (AI) will allow foreign carriers to bid for the national carrier, but with an Indian partner. This will definitely broaden the spectrum of potential investors in AI. But the decision is also significant for its timing, as it comes close on the heels of a Parliamentary standing committee concluding in its draft report that the government should review its decision to privatise or disinvest AI and explore the possibility of an alternative to disinvestment of the carrier, which is a national pride. Apart from laughable assertions such as private airlines will “indulge in gouging, which will not be in the interest of the consumers”, if AI is withdrawn from the aviation scene, the panel has asked the government to divest its stake only after AI is given at least five years to revive and its debt written off.

According to latest figures tabled in Parliament, AI had a total debt of about ~48,877 crore at the end of March 2017, of which about ~17,360 crore were aircraft loans and ~31,517 crore were working capital loans. The airline is expected to report a net loss of ~3,579 crore for 2017-18, according to Budget Estimates for 2017-18, from a provisional net loss of ~3,643 crore for 2016-17. Of course, the airline has shown some marginal improvement in its performance in recent months, but that is not enough. For example, net loss as a percentage of revenue at 16.4 per cent for 201617 is hardly a cause for rejoicing. The measure stood at 18.7 per cent in 2015-16. Moreover, it is not clear where the improvement is coming from, as the revenue includes exceptional and extraordinary items. Against that background, it is unclear why the committee thinks a five-year reprieve on disinvestment can help AI come out of the mess. The panel has also expressed concern over job losses after the strategic disinvestment and has asked the government to make an assessment of this aspect before deciding on the stake sale.

It is apparent that the committee has trotted out all the old chestnuts to argue against AI’s privatisation — the problems were created by the government, hence the debt should be written off; labour must be protected; the management should be given autonomy and a chance to move from loss to profits; subsidiaries that are profitable should not be sold, and so on. All these have been heard before and ignore the cost to the taxpayer of running a heavily loss-making airline. Some of the reasons are also plainly contradictory. For example, if a unit is profitable, it should not be sold; if it is loss-making, it should be given another chance to earn profits and so on. So either way, the government cannot sell. The short point is that AI is no longer central to the air transportation system, private carriers now account for 86 per cent of the traffic, and so there is no reason why one airline in the mix should be government-owned, with all the handicaps that brings, especially since it costs the taxpayer. The government has done well to ignore the parliamentary committee’s observations.