The decision to go for privatization of Air India is a momentous one by prime minister Narendra Modi and finance minister Arun Jaitley. Even though the prime minister had nice words about the attempt of the Air India management to turn the government-owned airline profitable during the last two years, the government is now of the view that airline business is best left to private players.
The finance minister noted that Air India’s share of the market had come down to 15 percent and if bulk of the operations can be done for private airlines, it made sense to privatize Air India.
Air India has the highest amount of debt by a public sector company. The outstanding loans from government and banks have run up Rs 50,000 crore, and the airline has to spend more than Rs 5,000 crore, just to make interest payments.
Although it has a large fleet of modern aircraft, valued at nearly Rs 30,000 crore and other assets totaling Rs 5,000 crore, the airline is not making enough money to service the loans. Since the government is the full owner and guarantor of the loans, Air India has not suffered the fate of Kingfisher Airlines, which went into bankruptcy because of its high loan burden.
Three years ago, Modi was more hopeful. He had received a long note on how to revive Air India from a railway official, who gave him a road map to make the white elephant fly. The officer, Ashwani Lohani, who had been the managing director of Indian Hotel Development Corporation and Madhya Pradesh Tourism had impressed Modi with his credentials.
Modi had invited Lohani, who had worked hard to get the Darjeeling railway line declared as a world heritage site, for a briefing on Air India. Lohani was given charge of Air India for three years as chairman and managing director. Lohani worked with a zeal to cut costs on fuel and employees. He proved to be a tough boss when pilots threatened to go on strike. He also reduced the load of free upgrades and staff concessions.
But Air India’s debt mountain dwindled Lohani’s enthusiasm. Further, he found that the decade-old merger of Air India and Indian Airlines had not worked well. Also, there were too many pending issues, which had led to staff dissatisfaction.
Jaitley, who is burdened with the more than two lakh crore bad loans of public sector banks, is also the minister for disinvestment. Apparently, Jaitley has asked a team of officers from banking, disinvestment and civil aviation departments to work on a way to privatize the state airliner and thereby, reduce the government’s debt burden, after receiving a formal request of loan waiver from Air India.
But there are strong challenges to be addressed. The government has to find a viable operator either in India or abroad to take over the airline and make the payments. The banks have to agree for transferring the loans to asset management companies so that the airline looks attractive. There is also a proposal to float Air India shares on the market once its bad loans are taken off the balance sheet. There will also be resistance from the employees unions.
It is a difficult road ahead, but the government seems to have decided to clench its teeth and march ahead towards privatization.