Disinvestment of ailing Air India needed; outright sale and asset-stripping isn’t

The Modi Government's apparently slow pace of reform has been a favourite target of its detractors, both foreign and domestic. By choosing to divest Air India, however, Narendra Modi and his Cabinet have decided to deal with an issue that Governments have been tossing like a hot potato from one to another for over three decades: The question is: What to do with Air IndiaIJ By deciding to divest its share in the airline, the Government has not allowed sentimentality to dictate the thought process.This is because Air India is a drain on national resources and is only alive due to a massive cash infusion made by the previous Government. The question of whether any regime should be in the business of running an airline, is a moot one. Air India and Indian Airlines served a purpose during India's development. But by treating the airline as personal fiefdoms, successive Civil Aviation Ministers and bureaucrats fatally weakened the airline. Air India, a one-time global leader in international travel, is today a bit player on the world stage, particularly as Indian Governments have handed rights to Arab aviation companies. Indian Airlines, which was merged into the international carrier in a seemingly haphazard manner, had begun to compete effectively with the rash of private airlines in the space. Make no mistakes, privately-run airlines such as IndiGo have become global leaders; Indian aviation is setting global standards and is one of the fastest growing sectors in the country — as anyone stuck in the morning rush-hour will tell you.

Yet, the Government, while biting the bullet — by choosing to take a one-time financial hit with Air India instead of the constant bleeding it suffers — should not rush into the privatisation process. Air India is a complex company with several subsidiaries and many historical legacies that cannot be ignored. While the Air India unions have predictably opposed the privatisation move, many employees have seen the writing on the wall and realised that, if the issue isn't dealt with today, it will fester and lead to a fatal shutdown. The opinions of unions and employees have to be taken into consideration during any privatisation or divestment. Indeed, employees should be given a stake in the company, no matter what the ownership structure is in the future. That said, Air India is an institution of national pride and while capitalism can be ruthless in the aviation space — the collapse of the world's original global airline Pan American being a case in point — we feel that Air India is worth saving for whichever investor comes in.

It is likely that the airline will be sold piecemeal with profitable engineering, real estate, catering, and even Air India Express likely to be separated from the core airline. Any investor into Air India should give some assurances that it will not brutally asset-strip the airline. The Government must also give the investors some assurances and freedoms on the management front. This could be in the way of route rights, business and loan assurances and, of course, some sort of waiver. The Government should continue to treat the airline as a strategic asset and be extremely careful about whom they sell the airline — even if partly.