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Privatization of Air India

Updated: Mar 26, 2021



“ Privatization is a bitter pill but a pill that will cure”

-Federick Chiluba

To establish the relation of this statement wrt Air India, it becomes imperative to first understand the history of the airlines.

Fasten your seat belts, cause it’s gonna be a bumpy ride.

Early Years: In 1932,it was founded by J.R.D TATA, as Tata Airlines. After Indian Independence, 49% of the airline was acquired by the Govt., renamed as Air India International Ltd. and domestic services were transferred to Indian Airlines, as a part of restructuring.

Post Liberation: Road to Privatization ; Till May 2007, Air India controlled International long haul routes and Indian Airlines operated the domestic and international short haul routes.

In 2007, Air India and Indian Airlines merged that resulted in a chain of reactions with Indian Airlines racked up with debt and emergence of aggressive challenges.

The Rollercoaster ride began starting from a combined loss of 7.7 billion, appointment of SBI to prepare road map, sale of assets, termination of financially less productive hubs, to suspension of invitation to join Star Alliance.( Star Alliance is the world’s largest global airline alliance founded on 14 May 1997 with 27 members currently. They have a two tier reward program, silver and gold, including priority boarding and they also share airport terminals)

This did not end here though. The Govt. further pumped a huge amount of 32 billion in a hope to revive the unit. However, the phase of misery continued from the US Transportation Dpt. fining the airlines for poor post customer services to the government’s decision to delay equity infusion of 300 billion slated to be infused slowly over 8 yrs.

The revival from this was a slow process with the airlines clearing a part of its dues by selling and leasing back its newly acquired Boeing 787 Dreamliners. The first positive EBITDA and 20% growth in operating revenue on March 2013 came as an icebreaker and brought back the hopes. Air India split into two subsidiaries for engineering and transportation. It went on to become a member of the Star Alliance successfully.

On June 2017, the government announced the Privatization of the airline.

Success occurs when opportunity meets preparation.

The UPA govt. has taken the airline into debt trap, now the NDA should make sure it is not remembered for selling the flag cheap.

There broadly exists three different views in the Aviation Ministry.

  1. Ashok Gajapathi Raju, Aviation Minister, says that it can’t be business as usual and some way has to be found to allow the airlines to survive. AirIndia is a good airline but finances are awful.

  2. Another senior official gives the opinion that instead of handing over the airlines to one strategic investor, it could be given to investors and run like a board-managed company.

  3. Another senior official suggests that a partner could come in as a strategic investor and that, overtime the govt. can gradually sell the rest of the stakes.

Privatization is definitely a tough decision and needs introspection. To understand the implementation and impact of this, it becomes vital to answer a few questions and get the facts clear.

One key question is why not make the first offer to the Tatas? Tatas reentered aviation with Vistara and AirAsia India. When questioned, a Tata Sons spokesperson told that “ The thing with Ratan Tata is that he really likes aviation. So, if the Govt. takes a haircut, one could see some interest.”

The next question being Why would any investor be interested in buying a financially weak unit? Air India’s massive infrastructure of engineering and ground handling subsidiaries would make any airline envious. It also is a member of the Star Alliance, the entry into which would itself be an exhaustive exercise that costs €10 million in entry fee and $100 million in investments in IT and other infrastructure. Air India proudly holds the largest collection of modern art too.

Having discussed the economic and financial aspects of it, it becomes necessary to address the question of How will the employees be impacted? Ownership changes would lead to change in working environment and work culture. The complexities of working in a PSU would get replaced by Corporate Culture, a culture in which merit would get a better deal.

Government resources (from direct and indirect taxes) should not be wasted in managing losses ,depriving the country of its much needed fast development. AirIndia with a mere 14% market share, debt of 50,000 crore needs revival, not by pumping more and more government funds but by Privatization. If 86% of flying can be handled by private sector, it can also handle 100%.

By Preethi. P

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