Air India can’t be sold, so best to shut it

By: |
Updated: July 3, 2019 7:00:10 AM

Air India’s net debt rose to Rs 58,352 crore at the end of March 2019, rising from about Rs 55,000 crore in FY18.

Air India, Hardeep Singh Puri, oil prices, air india privatisation, Jet Airways, opinionAI made losses of Rs 7,365 crore, up 38% from FY18’s Rs 5,337 crore. (Reuters)

It is not clear what the government hoped to achieve when it chose to issue a correction after civil aviation minister Hardeep Singh Puri told Parliament that the plan to sell Air India (AI) had been shelved due to high oil prices and a volatile rupee. After Puri’s statement, his own ministry issued a clarification saying the process of privatisation was still on and that Puri’s statement actually referred to an analysis that was done last year. In other words, the government would have us believe that it is just a matter of time before a buyer is found for AI. While such a move may boost market sentiment—it suggests the government’s zeal for tough reforms is very much there—this is difficult to believe since even a Jet Airways is finding it difficult to find a buyer; how will AI, whose balance sheeet is so much more compromised, and which has a lot more people who are so heavily unionised they even fight over who should fly which type of plane? And, what does it say about the government’s attempt to clean up AI that, as per Puri’s statement, AI’s net debt rose to Rs 58,352 crore at the end of March 2019, rising from about Rs 55,000 crore in FY18; and in a year when Jet Airways cancelled so many flights in the run-up to shutting down, AI made losses of Rs 7,365 crore, up 38% from FY18’s Rs 5,337 crore.

Some part of the problem will get addressed by the government hiving off AI’s debt into another company and using the sale of some of its assets to partially pay for this. But it is not clear when this haemorrhaging is going to stop since, while Air India is a full-service airline—although nowhere as classy as Kingfisher or Jet—its fare realisation is lower than even IndiGo’s. Fixing this means the government has to get rid of AI’s excess manpower by compulsorily retiring them, not by asking the potential buyer to do so. Indeed, apart from not taking over all of AI’s debt and retaining a stake in the airline—which really spooked buyers since no one wants the government as a partner—the biggest mistake the government made the last time around was to not deal with the labour issue. Theoretically, the new buyer could get rid of excess staff after a year, but this requires government permission, so who would be so foolhardy as to take on this risk? More so, since the entry barriers to setting up a world-class airline are so low now that the aircraft can be leased and rentals paid out of operational revenues?

If the government is at all serious about the privatisation, it needs to retrench AI’s staff first; the reason why excess staff was not a problem when airports like the Delhi one were privatised was that buyers were assured that the staffers would return to Airports Authority of India (AAI) if they were not absorbed by the private firms. Indeed, since Air India’s losses are going to keep mounting till it sorts out its operations—and it is not clear this can be done in a PSU structure—the government simply has to shut it down; it is unfair to expect taxpayers to fund Rs 7,000-8,000 crore annual losses in perpetuity, and they could rise quite quickly as well. Indeed, the same should be done for other white elephants like MTNL and BSNL that continue to bleed the taxpayer; when even professionally-managed companies like Airtel and Vodafone-Idea are having trouble dealing with the RJio onslaught, how will these PSUs that were making losses long before RJio even entered the market?

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.