Privatisation Challenges

The signals emanating from the Ministry of Civil Aviation indicate that the Government is confident and determined to succeed in its effort to privatise the national carrier.

Issue: 6 / 2017By Air Marshal B.K. Pandey (Retd)Illustration(s): By Anoop Kamath

The Indian media is abuzz with the news on the long standing issue of privatisation of the state-owned flag carrier Air India, something that has often been a subject of public debate as well. In order to understand the issue of privatisation of the airline, it would be necessary to delve briefly into the past.

The origin of the national carrier dates back to 1932 when the renowned Indian business tycoon JRD Tata who was also an aviator, founded a private carrier Tata Airlines. Post World War II, it was upgraded to a public limited company and was renamed as Air India. In 1948, the Government acquired 49 per cent stake in the airline. In 1953, subsequent to the promulgation of the Air Corporations Act, the Government acquired majority stake in the airline. The airline was then renamed as Air India International and was dedicated to operations on the international segment. As a part of this restructuring process, flight operations in the domestic segment was assigned to Indian Airlines which was also state-owned. The first major private airline in India thus became a public sector entity and that is when its troubles began to take root.

The national carrier was afflicted by the ills normally associated with the public sector that resulted in cumulative losses. In the year 2000, an attempt by the Ministry of Civil Aviation (MoCA) to privatise the national carrier did not find favour and hence was abandoned. Air India suffered the second major blow in 2007 when it was merged with Indian Airlines to form a single entity Air India Limited. The combined losses for Air India and Indian Airlines at the end of the financial year 2006–07 stood at Rs. 7.7 billion ($120 million). After the merger which has all along been a subject of controversy, the losses by March 2009 by the newly formed Air India Limited, went up nearly ten times to Rs. 72 billion ($1.1 billion). In order to keep the national carrier afloat, in March 2012, the government provided life support through massive infusion of funds to the tune of Rs. 32 billion ($500 million).

In 2012, a study commissioned by the Government recommended that Air India should be partly privatised. The following year, the MoCA admitted that privatisation was the key to the survival of Air India. However, all attempts by the MoCA so far at privatisation of the state-owned airline have been frustrated by political interference, impediments created by the unions as also a lack of enthusiasm amongst potential buyers. Today, the debt burden on the national carrier stands at Rs. 520 billion ($8 billion), something that may prove to be an insurmountable obstacle.

While there has been marginal improvement in the performance of the national carrier, Air India continues to be a heavy burden to the tax payer. This situation has existed for some time, but is no longer tenable. The Airline’s market share has progressively eroded to a paltry 13 per cent indicating its inability to compete with the far more efficiently managed private carriers. As the Government has now embarked upon privatisation of the ailing public sector units in the country, Air India ought to rightfully figure high on the list. This view has been endorsed by the Niti Aayog as well.

The Indian Commercial Pilots’ Association (ICPA) in which Air India pilots have a sizeable representation, has conveyed their support of the move by the Government to privatise the national carrier with the proviso. The ICPA is not averse to part or complete privatisation of the airline if done fairly. However, there is fresh trouble brewing as there is stiff opposition to the move by the Employees Union of the national carrier. The Union has described the proposal by the Government to privatise the national carrier as “unilateral and arbitrary” and has threatened to launch a campaign to oppose the move. The Union has also appealed to all the stakeholders to forge a common platform to spearhead the agitation. It is quite obvious that the employees of the national carrier would not like to be evicted unceremoniously from the comfort zone of the state-owned enterprise that they have been accustomed to for years.

The signals emanating from the MoCA indicate that the Government is confident and determined to succeed in its effort to privatise the national carrier. However, unless the Government finds ways to first neutralise the colossal debt liability of the national carrier, there may not be many takers forthcoming to invest in Air India.