New flight plan

Air India seems all set to find a new commander

AIR INDIA-DIVESTMENT/ Reuters

IT MAY BE A maharaja in the skies, but it is just a gilded pauper on the ground. The king in distress is desperately looking for a knight in shining armour to take him out of turbulence.

The question is, will Air India find that saviour?

The government has made its intent clear. Finance Minister Nirmala Sitharaman has even set the deadline of March 2020 to sell off the beleaguered national carrier, and Civil Aviation Minister Hardeep Singh Puri told Parliament that it would have to be “closed down” or “privatised”. Ashwani Lohani, chairman and managing director of the airline, told THE WEEK that it could once again become one of the finest airlines in the world, but “only in private hands”.

The Air India Specific Alternative Mechanism (AISAM), a committee headed by Home Minister Amit Shah and includes Sitharaman, Puri and Transport Minister Nitin Gadkari, shares the sentiment. The committee seems to have learnt from its past mistakes. In 2018, a sale attempt fell flat because there were no bidders. An Ernst & Young analysis told the government the writing on the wall—no one wanted an airline in which the government held 24 per cent and might continue to interfere in decision-making. Not to forget the massive debt and liabilities (estimated at Rs58,000 crore and counting), volatile crude prices, fluctuations in exchange rate and the many conditions placed about eligibility of those wanting to bid.

This time, the government appears suitably chastened. All of the airline is for sale and the successful bidder will have a full say on its future course. The winning bidder also gets the profit-making subsidiaries—Air India Express (which runs low-cost services to the Persian Gulf region) and Air India SATS (a 50:50 joint venture with Singapore Airlines for airport services). Not to forget the large pool of highly skilled and experienced staff, 169 aircraft and flying rights to 43 cities in 31 countries and 55 domestic destinations.

The Union cabinet has sweetened the deal by hiving off working capital loans not backed by any asset (around Rs30,000 crore) into a special purpose vehicle called Air India Asset Holding Company. This company would also own AITSL (ground handling division), AIESL (engineering services division), Alliance Air (a subsidiary airline), Hotel Corporation of India (which runs the Centaur hotels in Delhi and Srinagar), and other assets, ranging from valuable real estate (including the iconic Air India building in Nariman Point in Mumbai) to precious art and artefacts that the airline has collected over the years.

The idea is to monetise whatever possible, keeping in mind that even after getting the reserve price the winning bidder will pay, the government may end up with a loss. “It is better the government takes the haircut now, so it will not need to fund Rs5,000 crore (the ballpark figure of loss every year). It is a one-time cleanup,” said Kapil Kaul, CEO & director (South Asia) of the Centre for Asia Pacific Aviation (India).

The Augean stables of Air India are the stuff of nightmares and a textbook case for why governments should not be running airlines, or any business, for that matter. In 2007, the government ordered the merger of the two main state carriers—Air India, which primarily operated on international routes, and Indian Airlines, which primarily operated on domestic routes. The intention was to create a formidable state carrier which can become a global aviation heavyweight. What it turned out to be, however, was a bloated, unviable entity.

The staff and departments of the two airlines never managed to integrate, leading to politicking and turmoil within the ranks. While political and bureaucratic interference merrily continued, the airline’s losses mounted. The net loss this year was Rs8,550 crore. A humongous order for Boeing planes from the last decade is still bleeding the company.

Air India’s disinvestment was first suggested in the first spate of disinvestment by the Vajpayee government at the turn of the century. “It did not succeed because of bureaucratic shenanigans and the role of a private airline promoter who saw in a resurgent AI competition for his then-fledgling airline,” wrote Jitendra Bhargava, former director of Air India, in a newspaper article.

The disinvestment process is laborious, and it is unlikely to keep the March deadline. While the government has already done its due diligence, one of the reasons for the delay is fixing the reserve price and issuing the request for proposal. If the reserve price is too low, it will invite criticism from the opposition parties; if it is too high, it will put off parties interested in buying the airline. Bidders will need time to study the expressions of interest and draft share purchase agreement. They will also need to go through all the data of the airline which would be made accessible to them. This could take a few months. Once a bid is chosen, the government will issue a letter of intent to the selected company, which would still need around six months to complete the transfer of ownership. “I would say, around this time next year or early 2021, Air India will be operating as a private airline,” said Kaul.

Air India could still turn out to be a jewel. “Air India has a number of positives,” said Sidharath Kapur, an aviation expert who till recently was CEO of Adani Group’s airports division. “It is the dominant player in India on international routes, with excellent slots at all major international airports. It has a pool of skilled manpower and on the operations front has significant room for efficiency improvement. (Air India remains) the best bet to develop India as a major transit hub. With improvement in efficiency, I am sure that most Indians would rather use Air India for direct flights rather than use a hub in the Middle East or Europe.”

It is not going to be a smooth flight, though. Many political parties and trade unions have come out opposing the sale. The RSS-affiliated Swadeshi Jagran Manch has said that it was “against national interest”. The Air India Employees Union (AIEU), the biggest staff union in the airline, also does not intend to let go without a fight. “Higher authorities took decisions like the disastrous merger, which led to losses,” said Nitin Mhatre, patron and former president of AIEU. “Why do the workers have to suffer for it? Pinpoint who is behind this state of affairs. Why has no action been taken against those responsible? If compulsorily retired, those above 40 will not get jobs. These are people with loans to pay, children studying, and they are staring at an uncertain future.”

The government has made it clear that it will work out the best possible settlement for employees. “We are committed to securing a favourable deal for all employees,” said Puri. While the government has promised a one year job guarantee for all employees, unions have been pressing for two years or more. Their demands also include continuation of health benefits provided to serving and retired employees, and the free tickets staff are entitled to.

Though the government seems to have cleared the decks for the sale of the national carrier, things could still go wrong. “If the government is resolute and not stuck too much on the reserve price, I see the sale going through,” said Kaul. “But you never know what is going to happen.”

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