Making Air India’s disinvestment work

An Air India Airbus A320neo plane taking off in Colomiers near Toulouse, France, in 2017.   | Photo Credit: Regis Duvignau

The once-iconic Air India has, in the last four decades, witnessed a calamitous fall. The diminution had been gradual when it operated in a near-monopoly environment but the pace of descent intensified when it faced competition. In the late 1990s, the government recognised the gradual decline in the airline’s service standards and referred it to the newly set up Disinvestment Commission of India, which recommended dilution of government ownership to 40%. The effort of the-then National Democratic Alliance government did not, however, succeed due to bureaucratic shenanigans and the role of a private airline promoter who saw in a resurgent Air India competition for his then-fledgling airline. Had the disinvestment efforts succeeded, Air India would have today been a professionally managed successful airline.

The period commencing 2004 hastened the airline’s descent due a series of reckless decisions, like acquisition of aircraft in numbers far more than what it could afford or gainfully deploy; and the merger with Indian Airlines, which was scripted to fail from the word go. Competitively, the airline was also placed on a weaker wicket due to a liberal doling out of seats by the then administration to foreign airlines (the matter is under investigation by both the CBI and Enforcement Directorate), allowing them to dominate the Indian skies.

Lack of strategic direction

Air India’s precarious financial situation was first made public in June 2009 by the then-Chairman Arvind Jadhav. But the government, instead of tackling the core problem — the lack of a strategic and operational direction within the airline — decided to focus on a financial package. This was like applying a fresh coat of paint to a crumbling house. The bailout package of over ₹30,000 crore, which is being infused over an eight-year span ending 2021, has not helped Air India evolve into a robust carrier. The reality is that the airline’s survival depends on several factors, most notably the induction of a professional management with an effective leadership, a sound financial package that does not come with political interference in its day-to-day operations, and unions allowing changes in work conditions and pay packages. In 2017, Niti Aayog recommended disinvestment but the government, in its wisdom, decided to not only retain 24% equity, it also wanted the acquirer to absorb a major chunk of the non-aircraft related debt. The simple logic that a proposal for sale has to suit the acquirer as much as the seller was conveniently overlooked and the offer found no takers.

Also read: Air India disinvestment set to take off again

Now, the government has, once again, put Air India on the block for disinvestment. However, it still doesn’t appear to be convinced of the airline’s strengths. The disinvestment process is largely driven by the Centre’s anxiety to get rid of the airline, so that it can spare itself of the responsibility of further infusion of funds.

Besides playing to its strengths, the government ought to — if it is sincere about making the exercise a success — ensure that it exits totally, giving freedom to the potential acquirer to transform it into a successful player. The cost of further infusion of funds if the exercise is allowed to fail mustn’t be overlooked. To evoke interest in a product that still commands a sizeable market share and has an extensive global network that no other Indian carrier can match, the government also needs marketing skills.

Explaining it to stakeholders

Air India evokes emotions and a lot of people are averse to its sale. They cite its glorious past, the yeomen service it has provided to the nation by evacuating Indians stranded anywhere in the world, etc. It is therefore critical that an environment is created where in all major stakeholders are convinced that disinvestment is the best way forward. The unfortunate reality is that major stakeholders are being kept in the dark. Besides the Opposition political parties, unions, not necessarily all employees that they represent, are also opposed to disinvestment.

The threat of marginalisation can be the biggest and single most reason for convincing any naysayer. With only one in nine passengers currently patronising Air India, it will be only one in 12 in the next three years as capacity augmentation is undertaken at a frenetic pace by private airlines which cannot simply be matched by funds-starved Air India. Will any well-wisher of Air India take pride in the airline if it becomes irrelevant and marginalised in the Indian aviation market?

Successive Chairpersons have ‘claimed a turnaround’ in Air India’s fortunes, which is now being cited as a reason by unions and politicians for opposing the disinvestment course.The stark truth of the airline’s performance without government props needs to be effectively explained with facts and figures. The government also can’t absolve itself of the blame. While not taking the other stakeholders on board, it is also not paying attention to the legitimate grievances. For example, iIt hasn’t as yet firmed up as to how it will address the medical related concerns of serving and retired employees even though disinvestment has been in the works for three years now.

One sincerely hopes that the disinvestment exercise this time is thought of wisely, pursued with determination, and is successful, because with it is linked the prospect of transforming Air India into a robust carrier that we all can justifiably be proud of once again. The stakes are high because failure will mean doom through further marginalisation.

Jitender Bhargava is a former executive director of Air India

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Printable version | Oct 24, 2021 1:58:49 AM |

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