Another Attempt to Privatise Air India

The obvious answer is to sell off the national carrier and if this process fails, the Government will be left with no option but to shut down the airline

Issue: 01-2020By B.K. PandeyPhoto(s): By SP Guide Pubns

Established as Tata Airlines in 1932 by Tata Sons, a company headed by business tycoon JRD Tata, the private airline became a public limited company in 1946 after which it commenced full scale operations. The airline was then renamed as Air India. In 1948, the Government of India acquired 49 per cent stake in the carrier and in 1953, the airline was nationalised becoming a part of the Government owned public sector and was assigned the responsibility of operating on international routes. It was then renamed as Air India International. In 2007, the nationalised carrier merged with Indian Airlines, an entity owned by the Government operating in the domestic segment. The two airlines formed a joint venture airline that was then renamed as Air India operating on both international and domestic routes.

Once upon a time the pride of the nation, the national carrier Air India, has been in the doldrums since the merger in 2007 which in retrospect, is being viewed as a seriously flawed decision by the Government in the management of the public sector company. Today, Air India has a fleet of 146 aircraft and as of the end of December last year, the domestic market share of the national carrier stood at only 11.9 per cent which is pitifully low when compared with lowcost carriers in the private sector. Over the years, Air India has been surviving with the financial support by the Government through generous infusion of funds by way of doles and today, the debt burden along with other liabilities of the national carrier stands at over 86,000 crore.

Since the merger in 2007, the national carrier has been incurring heavy losses particularly over the last decade. Air India continues to bleed heavily with loss estimated to be in the region of 20 to 25 crore per day on an average leading to progressive increase in the company’s liabilities. This obviously cannot be sustained indefinitely as the Government will not be in a position to bear the enormity of the debt burden indefinitely. The obvious answer to the dilemma is to sell off or privatise the national carrier and if this process fails, the Government will be left with no option but to shut down the airline.

For the Government of India to set up and run its own airline in the public sector was quite justifiable when the Indian airline industry was not open to the private sector. However, the airline industry was opened to the private sector following the Naresh Chandra committee report in 2003 that had recommended deregulation and privatisation in the Indian airline industry. In the wake of this change in policy, a number of private airlines emerged on the scene. Although some private carriers could not survive and discontinued operations, some others have been prospering despite the highly competitive environment. In this scenario, there is no justification for the government to squander its resources in operating an airline in the public sector especially if it is running at a loss perpetually.

In 2018, during the first term of the NDA Government led by Prime Minister Narendra Modi, there was an attempt made by the Government at disinvestment of the national carrier. With a debt burden at that point in time of 60,000 crore and the Government offering 76 per cent stake to the prospective buyer while retaining a 24 per cent stake in the airline for itself, the proposal did not appear to be attractive to potential customer. As not a single prospective buyer came up with a proposal to pick up stake in the airline, the attempt at divestment of the national carrier thus proved to be a dismal failure. This has left Air India with the image of the proverbial “old and ageing white elephant”.

Nearly two years after the failed attempt at divestment of Air India, on January 27 this year, the Government has launched another determined bid to sell off the national carrier. As per the new bid document which is distinctly in favour of the prospective buyer, the government would divest 100 per cent stake that it holds in the national carrier, its subsidiaries such as Air India Express and its joint venture Air India SATS Airport Services. The buyer would have full management control, reduced debt, a leaner organisation and flexibility to form a consortium are among the relaxed terms on offer. With the terms of the deal that are considerably sweetened, hopefully, the Government will finally be able to buyer for the national carrier.