Is Privatization of Air India a Right Decision?

Source : Youtube

Settling decade old anticipation, the Modi-led cabinet finally gave an in-principle approval to the disinvestment of India’s flag aircraft carrier, Air India. Owned by a government-led enterprise, Air India has a fleet of Airbus and Boeing aircraft for 90 domestic and international destinations.

There are multiple reasons behind the abysmal performance of Air India that has led to an accumulation of Rs. 52,000 crores as debt for the enterprise. This is divided into Rs. 22,000 of aircraft loans and the rest is working loan and other liabilities. With no specific financial restructuring ever done accurately, the less income in passenger revenue has caused severe loss of efficiency. Furthermore, faulty deployment, lack of skilled human resource recruitment and absence of ancillary revenue add to its woes. Most of its assets could never be monetized as noticed in several audit reports. There has been a dismal mismatch of demand and supply of aircraft. Floating global tenders have been exasperatingly slow and lead to inefficiencies in procurement. Air India is not as competitive as other airlines and hence its international operations are making huge losses. It is also accused of gross mismanagement and under-utilization of its manpower.

Nevertheless, this debt-ridden airline has attracted interest among a lot of national and international players such as Tata Group, Indigo, and Qatar Airlines. Independent research has shown that in 2015-16, Air India’s employee-to-aircraft ratio was only 106 for a fleet size of 136. In addition to that, this flagship carrier has its own maintenance and repair center, contributing to its cost advantages. In fact, Air India’s passenger load factor has matched the worldwide average of the airline industry. A huge asset base, Star alliance membership value, international flying rights, and most importantly three subsidiaries that are profit-making add up to the attractiveness of its acquisition. Profit making MRO unit Air India Engineering Services Limited, ground handling arm Air India Transport Services Limited and Air India Charters Limited can witness a different strategic disinvestment altogether.

Now a panel of ministers headed by Arun Jaitley is strategizing the execution of this crucial decision. Think-tank NITI Aayog has recommended writing off the debts of Air India which is to the tune of Rs. 30,000 crores and selling 100% stakes to private players. The first meeting of the Group of Ministers has already taken place attended by Finance Minister Arun Jaitley, Civil Aviation Minister Ashok Gajapathi Raju, Railway Minister Suresh Prabhu, Union minister with independent charge for power and coal, Piyush Goyal. The government is weighing several options and is yet to decide on the mechanism and magnitude of sale. The latest update, however, has been that the government will issue a request for proposal (RFP) for selection of transaction adviser, legal advisor and asset value for the proposed disinvestment.

India is now the world’s third largest domestic air travel market, and hence its aviation industry needs a major overhaul. Innumerable challenges lie ahead while deciding the quantum of disinvestment, handling criticism from labor unions, and answering the parliament or public about selling a national asset.

Article by mausam

Is Privatization of Air India a Right Decision?


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