1. Air India privatisation: Why Maharaja should not be sold off

Air India privatisation: Why Maharaja should not be sold off

The government must explore alternative routes like restructuring, or sale/ redevelopment of some of its real estate assets; if need be, AI’s Debt should be retired.

Published: July 14, 2017 5:46 AM
air india, air india news, air india pivatisation, air india privatistion news The real value of Air India lies in its legacy inheritances. (Reuters)

Sunil Jain, on July 10, 2017, wrote a profound piece (goo.gl/xQ9wkH) on the proposed Air India sell off in this newspaper. He began by asking a question is Air India worth Rs 5 lakh crore as I had indicatively valued it in my column (goo.gl/P6u3Ck) for The Indian Express or, as some others have suggested, its worth is only Rs 1?

Before I deal with the valuation query there are certain other questions that the “morticians” of Air India need to answer. First, what public interest is served by privatising public assets? The global experience of the past 27 years is that it only creates oligarchs and oligarchies.

Second, where is the empirical evidence that private sector can run a better airline. For every one private airline that has been successful since the skies in India opened up in 1992, two have gone belly up. Even the prima donna of private airlines, Jet Airways, is a not much of an experience to write home about. Let me relate a recent experience. On the morning of July 11, I was accompanying the combined opposition candidate for president, Meira Kumar, to Jaipur for campaign. As the web-check-in had failed, I was standing in the boarding queue to collect my economy-class boarding pass, since that is the only configuration ATRs have. The check-in staff was obtuse, rude and arrogant in that order. Their behaviour could make any government ‘babu’ blush with shame.

Third, if public-public partnerships can run utilities successfully across the country, the Delhi Metro Railway Corporation (DMRC) that is jointly owned by the Union government and the Delhi government being a classical example, is the “sell out” of Air India the only solution to its problems? Why can not other ways like the GSTN (Goods and Service Tax Model Network) model not be explored whereby public institutional investors hold 50% of the equity and the remaining 50% is distributed among the general public and employees of Air India? The GSTN equity structure is as follows: Union government 24.5%, state governments 24.5%, HDFC 10%, HDFC Bank 10%, ICICI Bank 10%, NSE Strategic Investment Co 10% and LIC Housing Finance Ltd 11%?

Fourth, if crony capitalists, carpetbaggers and scamsters who are in debt to public sector banks to the tune of Rs 6 lakh crore can routinely have their debts restructured over and over again, why can’t the government bite the bullet and retire Air India’s debt and give it a fresh start?

Fifth, what is the deal and with whom? What happened between the end of March 2017, when the junior minister for civil aviation informed the Rajya Sabha that there is no move to privatise or disinvest in Air India, and Arun Jaitley’s assertion that if private airlines can cater to 86% of the Indian traffic, it can then do 100% too? Why this sudden change of heart? Does the government’s left hand not know what the right is doing, or the consummation has already been been done in the dark and only the motions of a public marriage ceremony are being gone through? These are questions that the Parliamentary Standing Committee of Civil Aviation, I hope, asked the government when it met on July 12—or, of course, these would nonetheless be agitated in the appropriate judicial forum.

Now, turning to the valuation of Air India which has a number of subsidiary companies. Except for two, all others are in profit, including Air India Express that flies the lucrative Gulf routes. That is why there is a proposal under consideration the ‘good Air India’ qua the ‘bad Air India’ paradigm whereby the profitable aspects of Air India are sold to select cronies and the government just winds up the rest of the company in the name non-profitability and cost optimisation, the euphemism of choice to sack lakhs of employees summarily in the private sector everyday.

Sunil Jain argues that it is difficult to value the prime real estate, landing slots, bilateral rights, fifth freedom rights and, of course, the ‘art’ that Air India possesses, and therefore, it should be sold at its ‘enterprise value’ that he has calculated at Rs 14,000 crore. By his recommendation, if the government was to divest 51% and retain 49% to be sold at a later date, then Air India would be hawked off for around Rs 7000 crore. I respectfully disagree.

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The real value of Air India lies in its legacy inheritances. In Mumbai alone, it has the iconic building in Nariman Point, plush flats in Bandra and a sprawling complex encompassing hundreds of acres in Kalina. Forget selling them, even if all this real estate is just redeveloped at current FSI (Floor Space Index) being given by the Government of Maharashtra in conjunction with the NBCC or any other public sector construction company, that would be more than enough to retire Air India’s debt. Air India has a sprawling complex in tony Vasant Vihar in Delhi and prime real estate all over the globe.

Coming to parking slots at international airports, some of them are grandfather slots dating back to JRD Tata’s time. A large number of them are not being used by Air India. Some of them would sell at a premium of millions of dollars. Then, there are fifth freedom rights that Air India has on some international destinations that it does not exploit and are no longer available. Their value is simply incalculable, and if properly auctioned, the sky is the limit. Coming to the bilalterals, Sunil is right that they belong to the government, and not Air India; but as the national carrier, and if I am properly informed, Air India has the right of first refusal. Private Indian carriers started using these bilateral rights after Air India said that it did not have the capacity to optimise them in full. It can thus be safely said the whole package called Air India is worth Rs 5 lakh crore, if not more.

Then, there is the larger national security argument. As government retains a toehold in the communications industry through BSNL and MTNL, and in the broadcasting space through Doordarshan and AIR, it must have its own airline also.

Air India, in the past, has come to the rescue of millions of stranded Indians from Kuwait in the first Gulf war in 1990, from Iraq in the second Gulf War in 2003, and Yemen during the current conflict and myriad other places where brave men and women of Air India have flown without fear or complaint.When volunteers were called for to fly the relief air-craft to Kandahar to negotiate with, service and bring back passengers of hijacked IC-814, the whole airline volunteered. Catch a private Airline doing it!

It is fashionable to bang Air India. Let us not throw the baby out with the bathwater. The government should find other ways of turning it around. That is why I began The Indian Express piece with the proverb, “Garib ki joru, sa’ab ki bhabhi”.

By Manish Tewari

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    Ramakrishnan, R
    Jul 19, 2017 at 10:09 am
    He has copied most of the arguments (against privatisation of Air India) from other publications!
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    1. M
      Manas
      Jul 14, 2017 at 6:07 pm
      1. What makes you think that airline business is similar to running a metro? Pls have some knowledge of aviation industry before writing such pieces. 2. For your statement regarding evacuation of st ed passengers internationally. Who do you think carries evacuation when there is a natural calamity in the country? Its the Indian Air Force. They are capable and well equipped to carry out such activities if need be. 3. Goverment has no business to be in airline business. It should be rightly sold at the earliest. 4. Dont worry about lakhs of people losing their jobs if Air India is shut. A lot of people have already left Air India in last several years to join private carriers offering better pay and working conditions, and the rest can be accomodated with almost 700 aircrafts order ordered by indian carriers everybody will get a job. 5. Air India should be sold at the earliest and Govt should focus on developing economic policies for the country.
      Reply
      1. R
        rohan kumar
        Jul 17, 2017 at 7:00 pm
        1. I disagree with you because the person who wrote it gave enough logic in his talk and if you army was capable of carrying out evacuation, why is Air India's name in Limca book for evac records? it seems you are not aware of army's capability, it does not have fleet size to evac lakhs of Indians abroad, only AI has such capacity and also the chance of a civillian aircraft getting shot down in hostile area is less than a army aircraft. 2. Which working conditions are you talking about? AI has won certifications and awards for its working atmosphere, please do research before blabbering imaginary stories
        Reply
      2. O
        om
        Jul 14, 2017 at 5:51 pm
        it happened due to private airlines were allowed in india since 2005 , all netas have shares in these airlines , nobody cares about sarkari things. modi has no willingness or capability to make it profitable while he always talks big bluff only
        Reply
        1. B
          B.Ganga Raju
          Jul 14, 2017 at 5:33 pm
          Good Analysis. But if the decision lies with the butcher who can save the goat? Ultimately for whose benefit the ruling party is ruling? The average educated, employed individual prefers public sector job security but keeps silent in the face of chorus about private sector efficiency and profitability. If Air India became sick who are the people who made it sick? Certainly not the common man who travels by train or bus. First they donot pay money owed by the government to Air India and then they say it is inefficient. Most of the media dances to their tune. Now-a-days those are the heroes who donot repay lakhs of crores to Banks.
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          1. S
            Simanta Bordoloi
            Jul 14, 2017 at 10:33 am
            The truth must be brought out. Irrespective of any party. Facts and figures should speak not mere hearsay. Any government must first ensure that the basis of their argument is in the right direction. An open mind is the order of the day. Be sure of what you are doing . Back it up with facts and figures. Bring in genuine professionals who who give unbiased and uninfluenced valuation report. If the facts weigh heavily towards privatization , so be it! If not , get professionals to run the airline . Owning does not necessarily mean that govt. has to run it too. Bring in professionals and make it run with laid down Key Performance Parameters (KPP) similar to what Y C Deveshwar did to Air India way back by racking in 300 crore plus profits.
            Reply
            1. S
              Sunil
              Jul 14, 2017 at 10:26 am
              "The government should find other ways of turning it around". Just check the total cost of government's intention to turn it around for past 8 years. There are many corporations in history which inherited much more legacy than Air India and closed due to losses. No need to waste more money for such a short lived "Legacy".
              Reply
              1. S
                Shekhar Shukla
                Jul 14, 2017 at 10:00 am
                Government should get out of airlines business. It is currently one of the most compe ive businesses across the globe and any government, other than one who hold sway over large oil resources, will not make money in airlines business. Lastly our hard earned tax money should not be spent on making up for losses of an airline. There is no guarantee that post everything being said, it will return back to profit.
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                1. D
                  DALIP NIM
                  Jul 14, 2017 at 9:56 am
                  MAHARAJA – TRANSFER OF SERVICES FROM PUBLIC TO PRIVATE OWNERSHIP AND CONTROL. Air India, by itself, was never on the verge of collapse or nosedive crash. The present scenario has risen due to the inept decision of merging Air India and Indian Airlines by the UPA political masters, unopposed by the NDA in 2007. Today, to get out of the situation for fishing-out Maharaja of troubled waters, the NDA political masters have, in prin l, decided to privatize the National Carrier. Will this be an apt decision by the present regime? PM Modi Sarkar has been using the international services of Maharaja for rejuvenating India’s global reach, image and appeal but has failed to turnaround the National Carrier into a profit making PSU during the past 3 years of their rule. Is this not a perceived major failure of the NDA government during its present governance? Has the route of privatization been taken by the NDA government is to push their lack of success under the Red Carpet of the Maharaja?
                  Reply
                  1. V
                    vj
                    Jul 14, 2017 at 9:52 am
                    All public sector organisations were milked by the politicians for their benefits. Air India is a fine example of the same. No need to use public money to feed the politicians and the lazy inefficient management and staff.
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                    1. R
                      Rk rath
                      Jul 14, 2017 at 9:28 pm
                      In our country, please express honestly, where the public money is not exploited. It is a sheer negative tornado. We are not emphasising for a cleaner administration as a whole. Everywhere the cunning one snatches. Even after more than 6 decades we are yet to give/get good governance. We the Indians can build / add values more and more in western countries. Is it not a question to coming generation. Reasons/examples will go on.
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                      Rakesh Choudhary
                      Jul 14, 2017 at 9:05 am
                      I agree with Sunil Jain, If Australia can fix bleeding Qantas Airline, why can't India. Few things can be done to fix the issue. 1. Fix the employee unions, 2. Hire right person for right job. ( CEO MD) not someone who is IAS officer, hire someone from corporate world. 3. Give freedom and power to take decision. 4. Improve on service ( core of maharaja). 5. Stop free perks or discounts. 6. Put a tap on every where Airline is losing money.
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                        Atul
                        Jul 14, 2017 at 7:34 am
                        I think this pro Congress stooge should be appointed Minister for Civil Aviation as his knowledge of Air India is more than anyone else.The fact why this article is published is because he travelled with the opposition candidate for President who is destined to lose. Mr Editor this newspaper belongs to a group founded by legendary Mr Ramanath Goenka. Dont let it become a tool of the politicians not even the BJP because media icon Mr Frank Moraes fooght for press freedom and when he left this group he had some issues with the management but Indiraji,the then PM of India intervened and asked Goenkaji to treat him with the respect he deserves and Goenkaji relented.
                        Reply
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