With two foreign airlines of repute, AirAsia and Singapore Airlines expected to emerge on the scene through joint ventures with an equally reputed Indian partner—the House of Tatas—competition for Air India will only increase making a turnaround even more difficult

Speaking at the India Economic Conclave organised by Economic Times recently, Ajit Singh, the Minister of Civil Aviation made public his view that the government ought not to be in the services industry, especially in one that involves operating an airline. “As this industry is capital intensive and fiercely competitive, it requires bold and speedy decision-making, attributes that the Indian Government is bereft of,” said the Minister. However, with this statement by the Minister of Civil Aviation, debate on the need to privatise the national carrier has acquired fresh momentum.

Beginning as a private airline for international operations, Air India International was set up by the House of Tatas soon after independence. It was nationalised in 1953 and the national carrier of today is an amalgamation in 2007 of the international and domestic segments of the government-owned airline industry. Before nationalisation, as one of the finest airlines in the world, Air India was the pride of the nation. However, nationalisation took its toll as afflicted by the malaise of the public sector, the rot set in and decline of the carrier began. By the beginning of the last decade, symptoms of financial distress were beginning to be manifest. Before the merger in 2007, the combined loss of both the domestic and international carriers was Rs. 770 crore, rising nearly tenfold to Rs. 7,200 crore by March 2009. This was followed by restructuring plans which are yet to produce any tangible results.

While there is clearly strong support for privatisation including from international level heavyweights like Ratan Tata and Montek Singh Ahluwalia, there is another segment of opinion that does not believe that privatising Air India will necessarily solve the serious problems that currently plague the airline. After all, airlines in the private sector established and run by reputed and competent entities have failed to survive in the hostile domain of the airline industry in India. The list includes Kingfisher Airlines, Air Sahara, East- West, Modiluft and Damania Airways. SpiceJet and GoAir are also reported to be reeling under heavy losses. PanAm, a leading carrier in the US went bankrupt two decades ago. On the other hand, some government-owned airlines such as Singapore Airlines have been eminently successful. Success of an airline is therefore not contingent on the pattern of ownership alone.

Advocates of privatisation of the national carrier hold the view that the examples listed above are mere exceptions and the adage goes, exceptions do not prove the rule. The need to find a solution to the financial woes of the carrier, however, is becoming increasingly urgent. What is apparent at this point in time is that so long as the airline is run by the government, the possibility of the airline being turned around is not within the realms of possibility.

The airline is currently burdened with accumulated debt of over Rs. 45,000 crore on account of bulk purchase of a large number of airliners a few years ago, a decision that is being seen not only as financially unsound but also somewhat bizarre. The airline continues to incur operating losses to the tune of Rs. 11 crore a day and needs constant financial support by the government which comes by way of infusion of tax payer’s money. During the last four years, the government has sunk Rs. 16,300 crore to sustain the carrier and has sanctioned another Rs. 30,000 crore of doles during the next seven years. Another Rs. 20,000 crore is needed for sovereign guarantees for short-term loans availed by the airline. Given the uncertain and questionable state of the national economy, it is not clear how and as to whether the government will be able to find the resources to sustain the lifeline of the ailing carrier. In any case, the government cannot be expected to continue to fund the carrier indefinitely.

Meanwhile, the carrier continues to be afflicted with the usual ills common to the public sector such as a bloated workforce, low productivity primarily on account of inefficient and poor work culture, labour dispute, strikes, archaic management practices, tardy decision-making, bureaucratic incompetence, blatant exploitation by all and sundry, political interference, all these aggravated by an indifferent political leadership.

With two foreign airlines of repute, AirAsia and Singapore Airlines expected to emerge on the scene through joint ventures with an equally reputed Indian partner, the House of Tatas, competition for Air India will only increase, making a turnaround even more difficult.

Given the evolving scenario in the Indian airline industry, it should be abundantly clear that there is no hope for Air India without privatisation.