Privatise Air India: Modi govt must firmly deal with the hurdles

The NITI Aayog has recommended strategic disinvestment of Air India, the loss-making and debt-laden national carrier. This has found support from Finance Minister Arun Jaitley, who said that if private airlines could carry 86 per cent of passengers, they might as well carry 100 per cent of them. However, Civil Aviation Minister Ashok Gajapathi Raju poured cold water over the proposal when he told a television channel on Wednesday that it would not be easy to find a bakra (gullible investor) for Air India. If the government is serious about privatising Air India, its ministers should not be allowed to talk at cross-purposes. Already, many feel there are forces within the government out to sabotage the strategic sale. The case for privatising Air India is strong. It has a debt of close to Rs 50,000 crore and the cost of servicing it has crippled the airline’s ability to do anything for fresh investments in route expansion or for upgrade of services. Moreover, analysts strongly believe that the airline may be overstating its operational profit: The Comptroller and Auditor General of India has also questioned its operational profit of Rs 105 crore for 2015-16. Air India’s occupancy compares poorly with other airlines, its service is shoddy and it has been losing market share. 

The government had in 2012 provided the airline with a bailout package of Rs 30,000 crore, but there is no sign of any improvement in its operational matrices. If an alternative is not thought of quickly, the government will probably have to devise a new relief package for Air India, which will be tantamount to throwing good money after bad. But here is the rub: Will a private player be interested in Air India? On the face of it, in spite of all the blemishes, Air India has a sizeable presence in overseas sectors. It has wide-bodied aircraft in its fleet that can be used for long-haul services. Air India Express, its subsidiary, is known to be fairly profitable. And the airline owns prime real estate valued at over Rs 4,000 crore. Yet there will be several stumbling blocks. The biggest is Air India’s debt. Making Air India disinvestment-ready will not be an easy process. Privatisation of Air India has been mooted more than once before; however, it has always come to nought.

The NITI Aayog has said that all non-aircraft related debt, which comprises almost half of the stockpile, should be written off. This will leave Air India with aircraft-related loans of Rs 21,000 crore and working capital loans of Rs 8,000 crore, which the new owner will inherit. It will be interesting to see if banks, financial institutions, oil companies and the Airports Authority of India agree to such a massive write-off. The other problem could be employees. Since it will be sold as a going concern, Air India’s staff will also have to be taken over by the new owner. The Air Corporation Employees’ Union has called the proposal unilateral and arbitrary, and has threatened to launch a campaign to oppose the move. The Bharatiya Mazdoor Sangh, the trade union arm of the Rashtriya Swayamsevak Sangh, too, has warned the government of a “major confrontation” if it decides to go ahead with this disinvestment. The airline’s employees have in the past objected to hiving off engineering and ground handling services into separate profit centres, a key part of the turnaround plan. In short, there are many hurdles on the privatisation runway.