Do It Already! Liberate Air India Maharaja from the Sarkar

Circle of Life: In 1970s Air India advised Singapore Airlines on training and on operations. In 2017, SIA with Tatas, is bidding for Air India.

By Shankkar Aiyar | Published: 25th June 2017 04:00 AM |

You could call it the circle of life.

In January 1971, the governments of Singapore and Malaysia decided to split Malaysia Singapore Airlines. A year later, the Government of Singapore incorporated Mercury Singapore Airlines — later renamed as Singapore Airlines (SIA). To acquire and adopt best practices, the Singapore government consulted the best in the business. Among the first it called on, and tied up for training and operations, was an airline called Air India.

Nearly half-a-century later, SIA is among the top 10 airlines of the world with flights to over 60 countries, with revenues exceeding $10 billion and operating profits of nearly half-a-billion dollars. Air India, the airline SIA looked up for excellence, is in a tailspin — with losses of over $2.5 billion in three years and debt of over $8.2 billion. To borrow a Latin legal phrase, res ipsa loquitur, the data and the words tell the story. The irony: SIA, along with the Tatas, could be one of the suitors for the Maharaja.

The contrast is riveting. Remember SIA is owned by the Government of Singapore — its sovereign fund Temasek owns 56 per cent of the airline’s stock and the rest is owned by global financial institutions. Air India, too, is owned by the government — lock, stock and the ‘pork barrel’ of politics. What is material is the saga of similarity of ownership and difference of approach — what professional intent can achieve and how politics can destroy.

The ignominy was predicted as early as in 1950, in the seminal 372-page Report of the Air Transport Enquiry Committee headed by Justice G S Rajadhyaksha. It said: “Air transport is a highly technical industry of a very specialised character. The slow and rigid bureaucratic methods inseparable from a Government Department are particularly unsuitable to the needs of the air transport industry which requires maximum of dispatch and flexibility in the conduct of management.”

The problems faced by the air transport industry in 1950, identified by the Committee, triggers a sense of déja vu. The problems listed were: high cost of operations and poor revenues, losses due to fuel costs, vagaries in tariff fixation and allocation of subsidies, mismatch in type of aircraft needed and used, excess staff, excess capacity forced by licencing conditions, high cost of salaries at higher levels, inconsistent policies on route clearances, uncertainty of licence tenure, irrationally exuberant plans and high cost of ventures and lack of adequate capital.

The Committee underlined the need for consolidation and restructuring of policy for the industry. The government, driven by the ideology of the Industrial Policy Resolution 1948 and political pressure of MPs, pushed through the Air Corporation Act of 1953. It nationalised Air India Ltd, earlier known as Tata Airlines, and Air India International — a joint venture in which the government owned 49 per cent and Tatas had a 10 per cent stake. It also nationalised seven other airlines — Air Services of India Ltd, Airways India, Bharat Airways, Deccan Airways, Himalayan Aviation Ltd, Indian National Airways, Kalinga Airlines and Air India International Ltd.

Socialism succeeded while the government had the monopoly over the skies and the passengers had no choice. In 1994, P V Narasimha Rao opened up the skies by amending the Air Corporation Act to allow private participation. It was an opportune time for the government to re-think its role. That was not to be. Indeed, a parade of the absurd followed the bizarre as policy. For instance, India allowed private sector participation, but barred investments by foreign airlines till recently — effectively shutting out expertise and capital.

The circle of life, it is said, moves from despair to hope. Tragically, for Air India, it has been from hope to despair.

In 2000, the Atal Bihari Vajpayee government listed Air India and Indian Airlines for disinvestment. The foreign partners of Indian bidders included Singapore Airlines, Lufthansa, British Airways, Qantas, Delta and Air France. The expected realisation then was: Rs 10,000 crore plus.

The attempt was scuttled by politics engineered by private players who promoted the notion that the nation must have a national carrier (Political Maharajas and the Royal Mess http://bit.ly/2kxLkXY).

Air India is yet again in despair. The Niti Aayog has observed that at current debt levels, the enterprise is unsustainable and advised 100 per cent disinvestment. The government, it appears, has decided that status quo cannot be sustained with tax payers’ monies — not when there is a queue of competitive claims for it from farmers to banks to electricity boards and, of course, infrastructure.

It is early days as yet but within this crisis there is a beacon of hope. The Tatas have yet again shown an interest in taking over Air India in partnership with Singapore Airlines. Officials have met with the Tatas — in what has been described as ‘informal talks’.

The contours of the deal are yet to be known. It is bound to be complex — given the level of indebtedness, the public sector structure and, therefore, workers’ interests. There is the issue of valuation. There is a need to evaluate, and make public, the value of the enterprise — its assets, brand royalty and premium for access. It would be a good idea for the government to call for competitive bids — for the sake of transparency and price discovery. There have been whispers about the plans of Qatar Airways. So why not open it up?

A good template for the structure of the deal would be the Maruti-Suzuki model where the government disinvested in phases — protecting its interests and enhancing value simultaneously. The government could offer a controlling stake and retain the rest to be offloaded later as in the case with Suzuki — this enables conditional intervention, but curbs interference.

The offer is an opportunity. It has the optics of legacy, the allure of sentiments — it was JRD Tata who started aviation in India — and will have mass subscription. It also has compelling political and economic logic — professionalisation of an enterprise, reduction in government obligation and role in business, clearing of a part of NPAs in the banking sector.

It could be a win-win deal. The government must get off the informal plank and go formal — do it already, liberate the Maharaja from the Sarkar.

Shankkar Aiyar is the author of Accidental India: A History of the Nation’s Passage through Crisis and Change

You can email him at shankkar.aiyar@gmail.com or follow him on Twitter. His previous columns can be found here. This column was first published here​.