Air India is facing problems not due to one politician or one Government. Its woes have been compounded through years of political negligence. The problem, however, is not intractable. The Narendra Modi Government has the political capital to deal with it
The term ‘Public Private Partnership’ or PPP is firmly a part of the developmental lexicon today, but India’s first PPP, well before the term existed in management consultation papers, was Air India International. Formed in 1948 as a joint-venture between the then dominion of India and the Tata’s, the Jawaharlal Nehru Government soon nationalised the venture. The legendary chairman of Tata Sons, Jahangir Ratanji Dadabhoy (JRD) Tata, had in a telegram written to Nehru in 1953 that he was not consulted when the Government decided to nationalise the airline with the passage of the Air Corporations Act, 1953.
Yet, Nehru respected Tata to the extent that he not only appointed JRD Tata to chair the airline but also acceded to his advice to have two separate operations for domestic and international air travel. Indeed, JRD Tata continued as chairman of Air India international, overseeing the growth of the airline and making it a standard-bearer for international travel all the way till 1978 when Prime Minister Morarji Desai removed him, although one of the earlier decisions taken by Indira Gandhi after returning to power in 1980 was to reappoint him.
Today, as you exit the elevators on the executive top floors of Air India building at Mumbai’s Nariman Point, you see JRD Tata’s desk faithfully preserved. Tata had overseen the introduction of the legendary Air India mascot, the maharaja, the famous ‘palace in the skies’ livery when the first Boeing 747, Emperor Ashoka was acquired in 1971. The airline was a leader in standards of service, maintenance and connectivity. In an era before the petro-carriers of the Middle East, Air India was at the very top of the global charts.
Where did things go wrong for the airlineIJ Or, to be more precise, whenIJ There is a litany of causes for Air India’s woes but a bulk of the blame will have to fall on the fact that the airline became a vehicle of political patronage. From free seats and upgrades being doled out willy-nilly; to dubious aircraft leasing and acquisition contracts to a badly mismanaged merger of Air India and Indian Airlines. To blame any one politician or Government for Air India’s failings would be unfair but the fact is that the airlines management of today, which seems to be trying hard to pull out of the steep nosedive, is facing woes compounded through years of political negligence.
Some might argue that Air India is beyond saving, and that the Government should have no business in the airline industry. After all, some of these worthies feel that airlines like IndiGo, in particular, have grown to cover most of India. But just like China still maintains, not one but several airlines under state control in addition to nominal private airlines, India needs to have a national carrier for situations like refugee rescue such as the airlift from Yemen recently as well as to ensure coverage to remote areas.
Also, when it comes to international connectivity, it must be admitted that Air India is taking the fight back to the petro-carriers of the Middle East, which have gorged on Indian air travel for the past decade. Under the new management, Air India has successfully started new services such as non-stop flights to the US West Coast and first-time services to Spain and Scandinavia.
While there are valid issues about the amounts paid for Air India fleet of Boeing 787 Dreamliners, there is little doubt that these efficient aircrafts have made a difference to the airline. Yet, Air India is sinking under years of debt and this needs to be resolved because every cash infusion into the airline goes straight into servicing the airlines’ debt. So, while Air India could be operationally profitable easily, it is stuck in a cycle of bad debt.
One solution to the airline’s precarious financial position would be for the Government to set up an Asset Reconstruction Company for the airline which can buy the airline’s aircraft assets and then lease them back to the airline at commercial rates. That, however, does not solve the issue of the massive amounts of debt hanging over the airline as the aircraft assets of the airline are worth half of the debt burden, and these include the rotting aircraft sitting in Delhi and Mumbai which should be scrapped immediately.
How does one take care of the other problemIJ One solution would be to hive off some of Air India’s subsidiaries, such as the engineering services and ground handling division. While air traffic in India has grown manifold in the past decade, Air India’s divisions have not benefitted from this growth, most private airlines get their fleets of airbus and boeing aircraft and their engines maintained overseas. Air India’s expertise in ground handling can also be put to use for India’s burgeoning market. These privatisations would bring these firms under professional management yet with Air India retaining a large stake in the company and this could raise money to service half of Air India’s remaining debt.
The airline operating company could also go in for a floatation of a part of their shares to retire even more debt. But that can happen if the Government goes in for a haircut and forgoes at least Rs 10,000 crore. Now, while that sum sounds humongous, it is a sum that is growing at an obscene pace. Previous Governments have treated the airline like a hot potato (albeit one to be enjoyed while in power), passing the problem on but the crisis and sums involved have only grown. If the Air India problem is not dealt with soon, we might be looking at an overall debt problem of Rs 100,000 crore in 2020 and beyond. The solutions proposed here could ensure that the losses involved can be managed.
Air India is not an intractable problem, and Narendra Modi’s Government has the political capital to deal with it. The Government has an aggressive social programme; but constantly diverting funds to keep Air India afloat, takes money away from meaningful social programmes and keeps an unviable airline going. It’s is a classic definition of a ‘lose-lose’ situation.
(The writer is Managing Editor, The Pioneer)