Air India's flight to nowhere

There are several theories doing the rounds about the government’s action plan for Air India (AI). Minister of State for Civil Aviation Jayant Sinha has just added one more to that list. In an interview with The Hindu, Mr Sinha said the government was working on a “robust” multi-dimensional transformation plan for AI to make it a “great global airline”. In an interaction with this newspaper, the minister said pretty much the same, except that he termed it a “winning” strategy, without giving any details. The common theme in his response was that the government was evaluating a host of options to deal with AI’s “crushing debt burden,” courtesy the previous government. The problem in such generic statements is simple: We have heard it all before.

No one can, however, disagree with the minister on the debt burden. By the end of 2015-16, AI still carried a debt load of Rs 46,000 crore and the cost of servicing it has crippled its ability to do anything for fresh investments in route expansion or upgrade of services. That’s not all. AI has seen countless write-offs and a botched merger under the previous regime. The United Progressive Alliance government also pumped in as much as Rs 30,000 crore to revive the airline — it has turned out to be a colossal waste of money. 

The airline’s share in the Indian market has shrunk to 14 per cent from 35 per cent a decade back, placing it third in the national ranking. The Public Enterprises Survey, tracking the performance of central public sector undertakings in 2015-16, revealed that the top three loss-making ones – SAIL, BSNL and Air India – incurred a loss equal to 51.65 per cent of the total loss made by the top 10 loss-making PSUs. 
 

Will the present government go beyond the same old “multi-dimensional transformation plan” for AI that Mr Sinha is talking about? The problem for the minister is that he perhaps doesn’t know what to do with the debt. It is more or less certain that lenders would not want to own a piece of worthless paper — which is all AI is at the moment. A group of lenders had reportedly turned down AI’s proposal to recast a part of its long term debt by converting half of it into equity through the Scheme for Sustainable Structuring of Stressed Assets (S4A).  The government has also been trying to induct banks as strategic investors in the airline in its efforts to recast AI’s working capital debt. But banks want a “sustainable” plan and a definite road map on unlocking of value. But that can come only if the government gets out of the way and allows lenders to have 100 per cent control. The lenders in turn can then sell AI gradually to private bidders. 

That amounts to privatisation. Forget the political fallout of that. The fact is it will be extremely difficult to get anybody remotely interested in buying AI at this stage. What makes matters worse is that AI’s claims of making an operating profit of Rs 105 crore during fiscal 2016 has been contested by the Comptroller and Auditor general (CAG) which said the airline had actually reported an operating loss of Rs 321 crore during the fiscal. That’s because, the CAG said, AI did not make provisions that it should have as per the standard accounting procedures, resulting in under reporting of the loss. CAG said the airline had inadequate provisions for payment. This kind of observation won’t give any comfort to the lenders to contribute to any turnaround plan.

Privatisation should have been done long ago when the timing was right, and the previous National Democratic Alliance government is as much responsible for the delay as successive Congress governments. The Tatas and Singapore Airlines had tied up in 2000 when the government led by Atal Bihari Vajpayee decided to divest 40 per cent stake in AI. A year later, Singapore Airlines walked out of that partnership due to intense opposition to the privatisation of public sector companies. The airline was profitable then and was also being wooed by Emirates and British Airways. 

The Tatas have already ruled out any interest in AI. Will anybody else play ball in a situation where the airline’s debt load is eating up operating profit? Unlikely. Chief Economic Adviser (CEA) Arvind Subramanian has on more than one occasion wondered whether AI should exist at all. The Economic Survey 2016-17 had made an indirect reference to Air India. The Survey had said the ambivalence towards the private sector was manifest in multiple ways, the most well-known example being the difficulty of privatising public enterprises even for firms where economists had made strong arguments that they belonged to the private sector. “Consider the civil aviation sector. Defying history, there is still the commitment to make the perennially unprofitable public sector airline ‘world class’,” the Survey had said.

By resolving to make AI a “great global airline,” Mr Sinha has once again proved the CEA right.