A powerful signal

Govt's approval of Air India privatisation is a landmark

The government deserves congratulations on approving Tata Group’s Rs 18,000-crore bid for the state-owned carrier, Air India. Selling off Air India has been the holy grail for privatisation in India. The “national carrier” has been bleeding ever since a botched merger with Indian Airlines more than a decade ago. Its presence in the civil aviation sector had severely distorted the market, since government subsidies allowed it to run at a loss and undercut private sector airlines. Taxpayer money has gushed out of the exchequer to the bottomless pit that is Air India for the past decade. In spite of that, it had steadily lost market share and brand value. Tata Sons’ bid through its wholly-owned subsidiary Talace of Rs 18,000 crore includes taking on some of Air India’s accumulated debt. The airline’s debt, until August 31, is Rs 61,562 crore, and the Tatas have offered to absorb Rs 15,300 crore. Capitalised lease obligations of Rs 9,185 crore for 42 aircraft in its fleet will also have to be borne by the acquirer separately. Since several profitable businesses and assets have been hived off in advance, and this includes having to pay the 12,000-odd workers of the airline for at least a year, the Tatas’ bid might be said to be generous.

That should not be a surprise, since Tata Group and its patriarch Ratan Tata in particular have long wanted to re-establish the dominance over international travel from India achieved by the original Air India, founded as Tata Airlines by Mr Tata’s predecessor J R D Tata in 1932. The airline has been in state hands since 1953 but Tata Group has always felt possessive about it — a sentiment underlined by Mr Tata’s celebratory “welcome back” tweet. The group has, however, in the interim made two other forays into the aviation space: The full-service airline Vistara in co-operation with Singapore Airlines being one. The Tatas are also the Indian partner for the Southeast Asian low-cost carrier AirAsia. In effect, the Tatas now own not just those two but also Air India — and its budget arm, Air India Express. This will give them over a quarter of the market. But it also means that streamlining their holdings will be an enormous and difficult process, complicated by the requirement to not sell off the Air India logo for several years and its existing partnerships. Questions will certainly be asked about the Tatas’ forward plans for modernising the Air India fleet and its synergies with their other operations.

On a macro level, however, Air India’s privatisation is an excellent signal for the government’s broader disinvestment programme. The airline, bleeding Rs 20 crore a day, has long been a millstone around the government’s neck and one of the most troublesome targets for disinvestment, with at least three attempts being made. If Air India can be privatised, there is no reason why other public sector units (PSUs) should not soon find themselves on the block. It is true that no PSU has been privatised since Atal Bihari Vajpayee was prime minister, but that jinx has now been broken. It is to be hoped that the next years will see more high-profile privatisations. Implementing the new policy for central PSUs and keeping a minimal presence in strategic sectors would also give the fiscal and administrative space to the government to focus on other areas.