Opinion DC Comment 29 Jan 2020 Will Centre succeed ...

Will Centre succeed in selling Air India now?

DECCAN CHRONICLE.
Published Jan 29, 2020, 2:09 am IST
Updated Jan 29, 2020, 2:09 am IST
Chronic mismanagement by Air India officials and missteps by successive governments bled the national carrier.
While today’s generation may see the national carrier as a symbol of inefficiency and a drag on government finances, older people have fond memories. Air India was the real Maharaja of India’s skies since its earlier avatar Tata Airlines was nationalised by Jawaharlal Nehru’s government in 1953 to create Air India. The airline’s troubles began ever since it was exposed to competition in the early 1990s.
 While today’s generation may see the national carrier as a symbol of inefficiency and a drag on government finances, older people have fond memories. Air India was the real Maharaja of India’s skies since its earlier avatar Tata Airlines was nationalised by Jawaharlal Nehru’s government in 1953 to create Air India. The airline’s troubles began ever since it was exposed to competition in the early 1990s.

The government’s announcement that it was ready to sell its entire stake in Air India effectively adds another airline to the failures’ list. It means that the government cannot bring the Maharaja back from the ICU despite all its might. Since private airlines were allowed in Indian skies, 13 airlines have been shut, and this will rise to 14 with Air India’s sale.

While today’s generation may see the national carrier as a symbol of inefficiency and a drag on government finances, older people have fond memories. Air India was the real Maharaja of India’s skies since its earlier avatar Tata Airlines was nationalised by Jawaharlal Nehru’s government in 1953 to create Air India. The airline’s troubles began ever since it was exposed to competition in the early 1990s.

 

Chronic mismanagement by Air India officials and missteps by successive governments bled the national carrier. The airline’s fall into the abyss gathered pace over the past decade as it took on higher levels of debt to purchase over 100 aircraft, slashed fares below the budget airline prices and continued to retain excessive and inefficient employees. The result is that it is now sitting on a mountain of `60,000-crore debt. All attempts to revive the airline proved futile, forcing the government to put Air India on the block in 2018. But that offer found no takers as the government wanted to retain a 25 per cent stake with itself and wanted the buyer to take over around `33,000 crores in debt.

Under the current sale offer, the buyer must take over at least `23,000 crores debt to acquire the national carrier. Compared to this, IndiGo, the only profitable Indian airline, has a debt of `17,337 crores. Some analysts claim the prospective buyer can recover the acquisition cost by adopting the sale-and-leaseback method for Air India’s 121 aircraft. But the situation doesn’t seem quite that rosy. One of the major red flags for any buyer is the employee cost of Air India. The airline has around 9,400 permanent employees and 3,600 fixed-term contract staff, including 1,850 pilots and 4,600 cabin crew, who enjoy benefits such as discounted air tickets and pensions.

The bid document doesn’t make the government’s stand clear on the treatment of employees and pension liabilities. Some analysts claim Air India would be a good buy due to its international routes, but a report by the Comptroller and Auditor-General of India claimed all its international routes were loss-making. One can’t really be sure whether Air India would find any buyers this time too.

Air India took advantage of the protective cover offered by government ownership to undercut fares to a level below budget carriers’ costs. This aggressive pricing had pushed the entire aviation sector into a crisis. If the government finally succeeds in selling its airline, it would be good for the aviation sector as a whole. Let there be no Maharaja in this era of democratisation.

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