Air India is back in the news, again for all the wrong reasons. Three years ago, a merger was forced between the two public sector airlines, Air India and Indian Airlines. It has not been successful. There is talk of a demerger now. The government that bats for the cause of the aam aadmi is working out a bailout package worth Rs 800 crore, in the first instance, from taxpayers? money. But this is no longer a real case of preserving national pride. All that?s at stake now is false pride, not family jewels really, but only their facade. No other country in the world is as bothered about airline ownership as we are.
The Group of Ministers (GoM) headed by Union finance minister Pranab Mukherjee met on February 3 to discuss for the nth time the losses that the public sector airline has been making and to discuss a revival package for it. The National Aviation Company of India Limited (NACIL) is owner of the merged entity Air India. It has already accumulated losses of Rs 7,200 crore. It has also accumulated debt of about Rs 16,000 crore from around 16 public sector banks. At the same time, it is involved in the purchasing of 111 aircraft worth Rs 50,000 crore. A sovereign guarantee has been given for this purchase?the Government of India will be liable in case of non-payment by Air India. Such a sovereign guarantee was not given to Air India last time when it purchased six Boeing 747s. But such a sovereign guarantee was indeed given for the infamous Enron deal.
In so far as Air India is actively pursuing savings, the request for cutting costs by Rs 2,000 crore has not been achieved. Reportedly, the GoM also felt that there is no worthwhile revival plan in place. As per present projections, the airline will remain in the red even till 2017-end. So the airline appears to be looking for budgetary support on a continuing and long-term basis.
The basic issue is that the government appears prepared to continue treating Air India as a public sector entity. This means that there is no incentive for major restructuring or for taking on the unions, which have led to many aberrations in Air India?s work culture and contributed to today?s impasse. Actually, all union agreements have lapsed over the years and new agreements have not been negotiated. Meanwhile, existing profit centres in Air India?which include departments like ground handling and engineering ?need to be strictly monitored.
In this connection, the recent bankruptcy of Japan Airlines (JAL) can teach some lessons to Air India. JAL has been bailed out by various Japanese governments a number of times, but it has finally filed for bankruptcy protection. It has a $25.4 billion debt. All board members have resigned. A drastic cutting of jobs from 51,862 to 36,210 is envisaged. It is also getting a bailout of $6.6 billion. Kazuo Inamori, founder of KYOCEI, a top electronics company, and a top management guru is being considered as the new chief executive of JAL. Further, alliance partners are being sought, one of whom is likely to be a leading US airline.
Air India?s case also falls in the same category as JAL. It is high time that a substantive restructuring was considered. An alliance partner should be sought, one that takes an equity stake in Air India and then helps it join one of the global alliances immediately. This would reap advantages in alliance bookings and transfer of passengers in a fashion similar to what is done in the hospitality sector, where Indian hotels tie up with one the international chains for international synergies.
Air India?s unfortunate merger with Indian Airlines, which was never followed up appropriately, has had disastrous consequences. The balance sheets still remain separate for these companies. The two airlines carry different codes and there are a lot of personnel issues that remain unresolved. A large number of posts have even been upgraded and new ones created, leading to higher expenditure instead of savings. A demerger and a return to two separate companies under NACIL is a possible option.
It is unfortunate that the disinvestment process of 2001 did not succeed, when Singapore Airlines withdrew from a proposed joint venture with Air India. This occurred because of the hostility towards disinvestment that was expressed in government, Parliament and press alike. The events of 9/11 in 2001 didn?t help either. It is also unfortunate that the recommendations in the report of the committee on a roadmap for the civil aviation sector?featuring former Cabinet secretary Naresh Chandra, HDFC chairman Deepak Parikh and former civil aviation secretary K Roy Paul?that was submitted to the civil aviation ministry in November 2003 were not considered insofar as Air India was concerned.
The committee clearly favoured early privatisation and transfer of management control to a strategic private investor. It wanted to reduce the share of government to 49% in Indian Airlines and 40% in Air India. It considered private placement of shares with domestic financial institutions and banks. This can perhaps still be attempted if the existing outstanding loans of Rs 16,000 crore are converted into equity by a due process of evaluation and the management is moved from a government-controlled environment to an independent environment, somewhat on the lines of what was done to Satyam after its collapse.
?The author is chairman of the International Foundation for Aviation and Aerospace Development (India chapter). He was formerly India?s representative to ICAO. sanat_kaul@hotmail.com
