The privatisation of Air India will test Modi’s reformist resolve
The proposed privatisation of India’s state-owned carrier will prove a balancing act for the government.
The proposed privatisation of Air India, the country’s flag carrier, will test both the Narendra Modi government’s resolve to push through politically contentious reforms as well as its ability to balance the need to make the sale attractive to private investors while warding off opposition charges that it was “nationalising losses and privatising profits”.
It will be a litmus test of how much his government is willing to antagonise the more protectionist side of ruling party, as a small but vociferous section remains opposed to privatising Air India, more so to the idea of selling it partially or fully to a foreign investor.
But Mohan Bhagwat, the head of the Rashtriya Swayamsevak Sangh (RSS), declared in November 2013 that he and the parivar – the loosely federated association of the RSS, the BJP and other likeminded organisations – were not bound by dogma and were willing to change with the times.
In all honesty, I must say that the case for privatisation is very strong. The national carrier has been a drag on the public exchequer for decades, and there is little logic in pouring in public money on a perennially loss-making behemoth.
The airline’s financials tell a sad story. According to published figures, it has incurred net losses of about $850 million, $950 million, $900 million, $600 million and $550 million in each of the last five years.
On the positive side, it has earned operating profits of $16 million and $34 million in the last two years. Then, it has plum slots at airports around the world, but inefficiency and corruption have sapped its ability to use these premium positions to achieve profitability.
It is pertinent to note that this path to a seeming recovery has been paved by a multi-billion-dollar government bailout of about $7.7 billion.
Then, there is also the issue of excess manpower. At the end of last year, Air India had 101 planes and over 21,000 employees. That’s about 210 employees per aircraft. The private sector Indigo, which has displaced the “Maharajah” to become the numero uno of the Indian skies, on the other hand, manages its fleet of 94 planes with half the number of staff.
As of now, the Tata Group, InterGlobe Aviation, which runs Indigo, India’s largest and most profitable airline, and Singapore Airlines have evinced interest in the Indian flag carrier. Additionally, the Bird Group has expressed its interest in acquiring the airline’s ground handling services.
Here, too, the Modi government has taken a brave but politically contentious step by recently liberalising FDI norms to permit foreign airlines to buy a 49 per cent stake in Air India with prior government approval.
Of course, the Indian competition watchdog will closely scrutinise any bid by the Tatas as the group already runs two airlines in the country. Singapore Airlines is a partner in Vistara, one of the two Tata airlines. So, any bid by Singapore’s national carrier could also face regulatory headwinds.
SpiceJet, a private sector Indian carrier, could be another suitor for the Maharajah. Its promoter, Ajay Singh, has established his credentials by buying it back when it was on the verge of bankruptcy and reviving it in double quick time. Given this track record, few will wager that he won’t be able, if he bids, to turn Air India around.
Also, I think the government is right to be selling Air India and its low-cost arm, Air India Express, together rather than doing so after unbundling the two. This will fetch the best value for the government and improve its chances of revival under a more efficient management.
I read recently that the Mumbai-Delhi sector is the world’s third busiest. And more and more Indians are flying abroad and many more business, leisure and medical travellers are visiting India every year.
As globalisation deepens India’s connect with the rest of the world, the country deserves a national carrier that symbolises the dynamism that the world is increasingly identifying the country with.
I was quite young when British Airways (BA), then a bloated, loss-making public sector national carrier like Air India, was privatised in the 1980s. That, too, was accompanied by much hand wringing and many protests. But look at the results: today’s BA is truly an airline that every Briton and, indeed, everyone who flies in it, can be proud of. It can be the same for Air India.
But despite the sound economic logic, I have no doubt that the privatisation of Air India will be heavily contested in the political arena. The Opposition as well as some others will almost certainly raise the pitch for the national carrier to remain with the government.
All this churning notwithstanding, with the decision to privatise Air India and also to allow foreign airlines to bid for 49 per cent, the Modi government has thrown down the gauntlet at the Opposition as well as the ideological conservatives on his own side.
As I said at the beginning, the process and the outcome of this privatisation initiative will be closely watched – and minutely dissected – all over the world.
Manoj Ladwa is the Founder and CEO of India Inc. publishers of India Global Business magazine.