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Should Air India be privatised?

Once considered the nation's pride, Air India (AI), symoblised by its mascot maharaja, is up in the air. And we are not talking about flying. Tushar Srivastava reports.

india Updated: Apr 29, 2011 21:10 IST
Tushar Srivastava

There is one maharaja whose privy purse seems to have lasted too long.

Once considered the nation's pride, Air India (AI), symoblised by its mascot maharaja, is up in the air. And we are not talking about flying.

As it grappled with a pilots' strike this week, an old question loomed larger than before: should the airline be given more cash as oxygen or hived off to private hands in a sunset plan?

Air India, which now includes the erstwhile Indian Airlines, saw a combined profit of more than Rs 75 crore in 2005-06 but losses have mounted since, and in 2009-10 was as much as Rs 8,500 crore, according to the Comptroller and Auditor General, the government's independent auditor.

Aviation experts, airline employees and aviation ministry officials, past and present, say it is impossible to revive it in its current form - as the airline is stuck with bloated staff, and needs infusions of government equity (see graphic).

With 40,000 employees and accumulated losses totalling Rs 13,000 crore in 2009-10, AI needs a lot of soul-searching. From aircraft leasing costs to staff-to-aircraft ratio, the airline is bleeding on all fronts. The daily cash inflow for the airline is Rs 36 crore while the outgo is Rs 57 crore.

Nimble private airlines have eroded the former monopoly's market share, which now stands at 15.4%, down from 50% in 2003.

Captain Mohan Ranganathan, a Chennai-based aviation expert and government panel member, puts it with pithy wisdom: "Other airlines need 'load factor' to survive. AI has the 'dole factor' to survive."

Blame is often placed on the shoulders of bureaucrats in the civil aviation ministry, who call the shots. Industry experts say the bosses have done little more than exploit the differences or rivalry between the staff of IA and AI.

In 2002, it seemed a solution had been found to the AI problem with a majority stake buyer, but the would-be suitor, Singapore Airlines, backed out.

Former civil aviation secretary Sanat Kaul said it was time to rescue Air India from a taxpayer bailout.

"You can't sell the airline today when it is at its bottom. No one will pay a good price. The solution is to privatise AI, get a private management to run it and allot shares to public sector banks," he said.

A report by consulting firm Booz and Co said last year that the airline was slipping into a "slow and silent decline" and unless drastic steps were taken the airline would slide into a "point of no return." The report had identified low productivity was a key factor in Air India's crisis.

It said cash flows were not enough to cover even the interest burden to finance Air India's new wide-body fleet, as it spoke of a "debt trap."

Kapil Kaul, South Asia CEO of Centre for Asia Pacific Aviation, an industry think-tank, said Air India needs a government intervention similar to the one fraud-hit Satyam Computer Services had, with a professional management coming in.

"AI needs to be privatised after three years and after achieving the financial objectives, with government maintaining 26% shareholding," he said.

Strikes are an annual ritual after IA and AI combined into a single entity four years ago. Bureaucrats and pilots are often locked in skirmishes. Praful Patel, the aviation minister under whose tenure the merger took place, did not respond to calls and text messages from HT.

The government has pumped in Rs 2,000 crore as equity in AI and will infuse Rs 1,200 crore more in 2011-12. However, Deloitte Touche Tohmatsu has said AI would need an equity infusion of around Rs 17,500 crore to come out of the current mess.

Arvind Jadhav, an IAS officer turned CMD, says the airline needs R10,000 crore more and an equal amount as an interest-free loan to regain financial health.

While AI did not respond to HT's queries, Jadhav had told HT in an earlier interview that the airline was in a deep debt trap.

"We are borrowing to pay interest and we are borrowing at steep interest rates because AI's creditworthiness isn't all that rosy," he had said.

"The solution lies in examining the reasons. What was it that altered the situation for AI - from performing well to not performing at all?" said PC Sen, former chairman of Air India.

While post-mortems may be in order, the red ink over the past few years clearly raises questions on whether more cash infusion is justified.