Civil Aviation Minister Ajit Singh’s pitch for the privatisation of India’s behemoth national carrier, Air India, may not exactly have been astute political timing, but as far as business sense goes, it was by far the most logical proposal to have come from someone in the government in a long time. Unfortunately, the cheer was short-lived as the minister came under political pressure to withdraw it and so began the flip-flop on what the statement really meant.
Politics aside, the minister’s comment is interesting, in that it makes room for a debate. It opens possibilities and questions the ability of the government to go on flogging this “embassy with wings”. Singh also said that after the Rs 30,000 crore equity infusion, the government would not give any more funds to the airline until 2021. To quote him, the “government should not be in the service sector like hotels”.
“It’s a sensible statement but the moot point is whether this is the right time for the government to go down that road, or is it five years too late,” says Jitender Bhargava, former spokesperson for the airline, who is now writing a book on the national carrier’s failure. “We have heard so many plans by the government to fix the airline, but every step it has taken has harmed Air India.”
A look at Air India’s financials shows a marked improvement in its operational and financial performance in 2012-13. This is partly due to an improved market following the demise of Kingfisher Airlines, a discipline in pricing and measures adopted to rationalise its network. Over the past year, Air India’s domestic market share has increased approximately from 14-20 percent. One would think these signs would be reasons enough for the government to privatise the airline while it was improving.
But concerns still remain.
One, there is hardly anyone out there who may be interested in swallowing the whale of a business that Air India has built over the past few years. Two, even if a consortium with very deep pockets were to crack a deal, the financial complexities involved may never let it take off the way a government carrier would. Three, the political pressures will be tremendous as the government would still exercise some control over it. Just after Ajit Singh’s statement, there were a slew of comments questioning such a possibility.
Even within operations, there are gaping problems. Of the 189 routes that Air India operates, only 12 meet total costs. From 2008 to 2012, it had losses accumulated up to $5.25 billion. This number is nearly as large as the package planned on spending to revive the airline in the next decade. Will it be used to retire debt or will it be used to improve operations? These figures collated by the Centre for Asia Pacific Aviation (CAPA) is enough to startle and scare any potential investor.
The question, therefore, remains: no matter what statements the aviation minister makes, is the airline viable even to be sold? “Ajit Singh may have said this but what’s the comprehensive plan behind this?” asks Bhargava.
All these years, the revival of Air India has been done in a piecemeal manner. An effort to launch low-cost versions with the Air India Express, failed. This was followed up with plans to merge Indian Airlines and the international carrier Air India. This too broke down as the merger brought cost overruns, duplicating routes and took a long while to unshackle merger complexities. At no point did the government wholeheartedly let the carrier take flight with a new plan. Rather than infusing capital on a one-time basis, “it drip-fed it over an uncertain schedule”, says the CAPA report.
Now, with foreign airlines embedded in the aviation sector, the market dynamics are being reshaped. Air India will be faced with an increasingly strengthened set of competitors on domestic, international and long-haul routes.
In a volatile market scenario where the government’s inability to sustain the national carrier has never been clearer, it would make sense to privatise the airline. It’s only ironic this opportunity seems more like a Damocles’ sword hanging over the heads of potential investors. One wonders if it’s not too late for such overhauls.