The reputation of India’s national air carrier for making consecutive losses is closely matched, and also linked, to its operational efficiencies. The issue of whether the airline has a future has been frequently posed, but the question has a certain edge after the introduction and growth of private airlines. Minister of State for Civil Aviation Jayant Sinha, however, believes the government can still revive the carrier, and grow it into India’s own “great global airline” to compete with the likes of Emirates and Lufthansa. In an interview to this newspaper, Mr. Sinha added that the government is working on a plan to improve the airline’s financial position, corporate governance, and management. But the main problems that beset Air India are structural, which is why efforts to revive the entity are unlikely to bear fruit. The airline has failed time and again to prove that it can generate sustainable profits. It recorded an operating profit after almost a decade in fiscal 2015-16, thanks mainly to a fall in oil prices, but still ended the year with a net loss. These losses have been mainly owing to a slew of operational inefficiencies, including a bloated workforce. It is doubtful whether these issues can be adequately addressed unless there is a change in ownership. Traditionally, public ownership has left the carrier’s management subservient to the interests of the political class, while taxpayers funding the airline’s operations have been left holding the short end of the stick.
Years of consecutive losses have also ruined Air India’s overall financial position, pushing the airline into a debt trap. In 2011, a consortium of public sector banks that gave working capital loans to Air India was forced to reduce the airline’s debt load. A bailout package of over ₹30,000 crore was also extended by the Centre in 2012 to deal with losses. Yet, by the end of 2015-16 Air India still carried a debt load of about ₹46,000 crore; the cost of paying interest on the debt alone was putting huge pressure on earnings. This has of late led many people, including Air India Chairman and Managing Director Ashwani Lohani, to project the airline’s problems as having simply to do with its capital structure. Such a conclusion ignores the reality that Air India’s debt burden is the product of bureaucratic mismanagement over several years. Any financial bailout that does not address this fundamental problem would mean throwing good money after bad. This would be sinful in an age where profitable private airlines can easily fill any vacuum left in the market by Air India’s exit. Private buyers are unlikely to come forward to buy Air India, as its debt load easily eats up any operating profit. In that case the government can either force public sector lenders to incur more losses, or use public funds to pay them out. Either way, the taxpayers will be the losers.
