Privatisation of Air India deserves praise…. …. but GoI needs to learn from it, and do more
Air India got sold. All 100% of it. This sale was in the works for the last 20 years, with several failed attempts. Imagine looking for a bride or groom for some-one, and a rishta is found after 20 years. One has to say, bahut bahut badhai ho.
It’s been sold by GoI to the Tatas, who ironically were the original founder-owners. In the nerdy world of people who follow privatisation and divestment efforts, this is a minor miracle. A part of me still finds it hard to believe. Perhaps the most expensive set of toys held by GoI, Air India’s fleet, despite best attempts, managed to make the government lose thousands of crores every year.
At the time of sale, the company’s debt was over Rs 60,000 crore. The winning bidder assumes only around Rs 15,000 crore of this existing debt, while the government will absorb the rest and pay it off by itself. This loss will be in addition to the tens of thousands of crores the government pumped into Air India for the past few decades.
And yet, despite the so-called losses on the deal, the government deserves major praise for getting it done. Air India wasn’t just an airline, it was a perennial loss-maker that could never really make money for the government now, especially given the massive interest burden on the huge debt.
The government having sold Air India means the losses stop immediately, which some estimates suggest were over Rs 20 crore a day - money that can be spent on development and welfare.
Of course, the government could have absorbed the debt and given the airline a fresh start - under the same management. But it didn’t, for it realised that the issue wasn’t the debt, but what led to the debtpoor management. Keep cleaning up the debts, keep paying the bills and keep running the airline the same way-nothing would change, and the losses would continue.
For some strange reason, Air India had become a symbol of ‘national pride’, making the sale a harder one, especially for a government that has nationalism as one of its key political planks. But Air India isn’t the Indian Air Force. A loss-making, cash-burning airline ranked low in global ratings is not a symbol of national pride, no matter what its ownership, history or name. National pride comes from excellence, not something Air India was known for.
To sell a loss- making governmentemployee- staffed airline at any normal time is hard enough, to do it when most international travel is compromised deserves extra praise. To the entire GoI team that worked on the deal – congratulations.
Air India is no ordinary privatisation. It’s a high- profile and highly- visible company. A 100% sale of AI shows that privatisation can be done, and citizens are OK with it. There was little backlash on the sale announcement. It is the season to privatise – and the government should do more of the same.
The AI sale also has good lessons for future divestments. Here are the top three cardinal truths to keep in mind, so it doesn’t take 20 years to sell a PSU next time. Accept privatisation as a part of life, no point debating it. Enough data now exists to show that the government should not run most businesses. Yes, it is true that one shouldn’t blindly support all privatisation. However, one shouldn’t call every privatisation a ` fire sale’ or ‘ selling family silver’ either. Frankly, if holding silver is going to be a dumb investment going forward, one should get rid of it anyway. Privatisation vs nationalisation debates have validity, but they are not silly binaries. A certain set of PSUs needs to be privatised, accept it.
Price the deal right. Air India sale attempts failed in 2001, 2018 and even in 2020. Mostly, it was on account of price. The government was always going to absorb some debt, the issue was how
much. Today, the Tatas will just take about 30% of the airline’s existing liabilities. Earlier attempts to get private players to assume 50% or 40% liabilities failed. PSUs are not family silver being sold for peanuts but financial assets that need to be priced right. Else nobody will come forward to buy. The deal had to make sense for the Tatas too. They are taking huge execution risks, hoping to turn the airline around and manage the massive staff used to governmentstyle perks and accountability. For this, the Tatas should make some money. Hence, they must enter the deal at a reasonable price.
Give up control. Past AI sale attempts to sell 40% and then 76% of the airline failed. This time, a clean 100% sale worked. The government choosing to stick around, even in a minor capacity, would have meant a turnaround could be compromised. A government is used to doing welfare, a company needs to be run based on commercial returns. The government has to leave. Leave the newly married couple alone. Exit, and don’t stick around to peep through the window.
The Air India sale hopefully signals a healthy change of mindset towards privatisation that improves Indian productivity. The deal is also a masterclass on how to get a privatisation deal done – with firm resolve, fair pricing, giving up control and yes, after celebrating the marriage leaving the couple alone. There’s plenty more PSU kids who still need suitors, after all.