Special Report

Air India: Failure was inevitable


Air India: Failure was inevitable

The belated and half-baked attempt to disinvest in Air India has suffered a miserable failure. Not a single party showed interest in buying the old and aging white elephant. With the tender terms tweaked in such a manner that whatever little interest there might have been in acquiring control of the public carrier, it was made further difficult for prospective parties. Babudom won over common sense, nay, market sense. Too many missteps flopped the bid. To begin with, the Modi Government showed little despatch in doing this early on its term. Taking up the inevitable in the last year meant that the disinvestment exercise would eventually have extended into the term of the next government.

Two, every attempt was made to make the sale of a truncated Air India unattractive for potential bidders. Anyone acquiring the fleet without the allied services and even the real estate would have been constantly in conflict with the Aviation Ministry. Instead of making the sale attractive by off-loading the real estate associated with the national carrier, it was kept out of the bidding process. This reflected a lack of conviction in the very idea of disinvestment of the once great airline. Modi has surprised many by not continuing the good work done on disinvestment by the Vajpayee Government. Whether or not he is against disinvestment by conviction or it was a more defensive posture, the fact is that he persisted with the policy of the previous governments to allow Air India to burn a huge hole in the public purse. Successive finance ministers have had to underwrite Air India losses almost every other year.

This  ought to have a salutary influence on the policy-makers. At a time when there was no private airline to service domestic and international travel, it made immense sense for the Government to own and run its own airline. However, since the opening of the aviation sector to the domestic players following economic liberalisation, there remained little or no rationale to persist with a losing state enterprise. Indeed, in 2003, the Naresh Chandra committee had called for deregulation and privatisation in the aviation sector. Whereas a number of domestic private airlines flourished, particularly when the global petroleum prices slumped to $30-35 a barrel, Air India continued to bleed. Again, that was no surprise. For, whereas nearly three hundred employees accounted for one aircraft in the case of the public carrier, the average workforce per aircraft for the private domestic carriers was nearly half. Besides , the usual compulsions of being State-owned inflicted  additional costs through abuse and misuse by the VIPs, bureaucrats and other connected people. Air India progressively lost share of the aviation market, now standing at a mere 13 per cent. No doubt, the long stint of Praful Patel as Aviation Minister saw him deliberately damage Air India to favour a couple of private airlines which have now stolen a huge march on it.


 What is the way out of the costly mess? Taking the insolvency route is an option. But the better one is to show boldness and try and re-write the norms and conditions for disinvestment in order to make it worthwhile for prospective suitors to show interest. Governments should not be running airlines. As they should not be running hotels. The report that the Government was considering to privatise the management of the iconic Ashok Hotel in the capital again reflects a half-hearted attempt to come to terms with the reality of the marketplace. The ITDC properties ought to be put on the block since these have outlived whatever utility they might have had at one time. Nehru sanctioned a five-star hotel in the early fifties following realisation that independent India does not have a half-decent place to put up various foreign dignitaries who came to New Delhi.

Since then the Indian economy has opened up. In fact, the national capital region boasts of far more five-star rooms than the actual demand. The point is the Government should not shy from disinvesting in sectors which have become a recurring burden on taxpayers.  It should use the proceeds from disinvestment in far more constructive ways. As for Air India, from the snail’s pace at which the bids were invited, it is more than likely that the whole process would be put on the back burner in the life of the current government. It is unfortunate that Modi failed to save the economy from this white elephant which costs taxpayers a few thousand crores every year. Now that the crude prices are moving up, Air India losses can only  shoot up further.




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