Now that the privatisation of Air India has come a cropper, NITI Aayog vice-chairman, Rajiv Kumar, has suggested the government list Air India—this assumes there are enough investors who want to buy into the ailing airline. Once there is a wide shareholding, Kumar argues, Air India will become truly autonomous and “you could get a private corporate board like you have at MNCs”, he told Hindu Business Line. Once the government’s shareholding in Air India is below 51%, Kumar seems to suggest, the usual shackles on its functioning—like having to tender for everything—will be removed; if it has a top-class autonomous board, he suggests that the airline will find it easier to turn around. Since both the RSS and the Swadeshi Jagran Manch are touting similar solutions, should the Narendra Modi government wish to implement this solution, it should be relatively easy to do.
To assume the government will let a board be autonomous, to begin with, is a big assumption. The fact that the oil marketing companies put their petrol/diesel hikes on hold for the Karnataka elections, or that ONGC bought GSPC’s fields in the KG Basin, and then HPCL, are recent examples of how the government and independent boards do not quite go together—all these firms have supposedly independent boards. That apart, the listing solution would have made sense if the real pain-point for Air India was just the problems associated with it being a PSU. Certainly, a freer hand is a good thing, but Air India’s biggest problem right now seems to be its inefficient and bloated work force. If the government could not give potential buyers for the airline any comfort on how soon they would be able to get rid of part of the staff—or to say that the government would take care of the issue through a generous VRS—where is the question of the newly-listed Air India being able to do this? Kotak Institutional Equities estimates that, in FY17, Air India’s staff costs were 1.3 times those of Indigo and other expenses were 2.4 times. No airline with such cost structures can possibly survive.
More importantly, in any company, listed or unlisted, it is the duty of the shareholders to inject the equity required to keep it afloat. Air India needed Rs 4,000-5,000 crore a year of cash infusions when oil prices were low, so the number is likely to have risen significantly by now. Since it is unlikely that private investors will buy a stake in Air India, either the government or other possible PSU investors like LIC will need to fund this loss for as many years as it takes for the airline to turn itself around. Since no one can afford to fund such losses, the government’s best bet is to quickly address the issues that kept potential investors away. This includes ensuring that the government completely exits the airline—most investors felt uncomfortable with the government retaining a 24% stake in the airline which would give it around two directors on the airline’s board—and finding a solution, through a government-funded VRS, to the airline’s large and inefficient work force; other irritants such as the stipulation that the airline needs to be run as a stand-alone entity also need to be removed immediately.