“The Ministry of Civil Aviation (MoCA) and the Government must recognise that Air India is the national carrier. In very many ways, it is a symbol of the State.” These lines of the Comptroller and Auditor General (CAG) — mentioned in a recent report — show why the “Maharajah” will continue to reign as the country’s national airline even though it is almost bankrupt.
It therefore came as a surprise when Civil Aviation Minister Ajit Singh set off a storm recently when he said that India did not really need to have a Government-owned airline. Pointing out that the “concept” of national carriers was defunct in most countries and questioning whether it was the Government’s job to run a service sector like an airline, the minister came under some fire from other MPs. But with a pilot strike that has lasted 11 days and with the airline bracing for more trouble from other unions in the months to come, the minister’s statement raised several important questions.
With the Government deciding last month to pump in a whopping `30,000 crore over the next eight years to bail out the Maharajah, questions are being raised on whether so much of tax-payers’ money should be spent on an ailing airline and whether it would not be better to sell it off. After all, the disgruntled unions in the airline do not seem to be looking beyond their wage and parity issues. Interestingly, Air India’s situation had triggered a debate within top levels of the Government on whether it was better off selling a bankrupt airline or whether the national airline should be salvaged with tax-payers’ money. With the economic slowdown on one hand and the nearly-30,000 employees on Air India’s pay-rolls on the other, there were no easy solutions.
But as a top Government source told this newspaper, “This airline will find no buyers now. Even if the Government decides to sell it off now, no one will buy it.” That perhaps swung the day in favour of the massive equity infusion to breathe fresh life into the Maharajah who lived to fight another day.
Just how did things come to such a pass? After all, the erstwhile domestic carrier Indian Airlines and international carrier Air India were merged into a new entity--Air India — with much fanfare between March and August, 2007. Many, like aviation expert and Air India’s former Executive Director Jitender Bhargava, believe that the merger, besides acquisition of aircraft in numbers far in excess of what it could gainfully deploy or afford has “accentuated the pace of descent for crashlanding”.
A report tabled by Parliament’s Committee on Public Undertakings (CPU) on Air India tabled two years ago is more scathing and describes the “so-called merger” as “nothing but a kind of marriage between two incompatible individuals with hardly any meeting ground” . “The committee notes with concern that the merger of the erstwhile Indian Airlines and Air India was an ill-conceived and erroneous decision neither arrived at by the two airlines on their own accord nor mutually considered by them to be in their best interests.”
“A critical fact to be noted is that prior to the merger, Air India and Indian Airlines were distinct entities having wide variances in critical areas such as operations, fleet requirement, conditions of recruitment, pay structures, IT requirements and functioning. The post-merger scenario clearly indicates lack of proper scrutiny of these critical issues and an undue haste by the Government ...”, the CPU report states. As a top official explained to the shocked CPU in 2009, “What has happened is though these two are PSUs in the civil aviation industry, their internal procedures, processes, human relations, working conditions, timings and methods of dealing are totally different.”
These words — uttered three years ago — ring true even today, since the ongoing pilot strike was declared after erstwhile Air India (international-route) pilots objected to the erstwhile Indian Airlines pilots being allowed to train on the new Boeing 787 dreamliner aircraft. Hatred, distrust and suspicion between employees of the two erstwhile carriers is directly affecting passengers even today in the form of strikes.
What is particularly ironical is that a decade ago, the two carriers were actually making profits while being individual entities. Admittedly though, it was a time of far-less competition than what exists today. For instance, from the financial year 2001-02 to 2005-06, the erstwhile Air India made profits continuously. From 2003-04 to 2005-06, the erstwhile Indian Airlines too made profits. But then things went horribly wrong. In 2007- 08, the unified carrier made huge losses of `2,226 crore. In 2008-09, it rose to `5,548 crore and by 2010-11, it had reached a staggering `6,865 crore. The aircraft loan was `21,412 crore while the working capital loan was `22,368 crore. This made a Government bailout inevitable if the airline was to be saved.
From the time the airline made huge losses, Government policy too came in for much criticism from various quarters. An ambitious aircraft acquisition programme — 43 Airbus aircraft for Indian Airlines, 50 Boeing aircraft for Air India and 18 more Boeing aircraft for Air India Express — was finalised by 2005-06 at a cost of about `44,000 crore, even as the paid up capital of the unified carrier was only `145 crore. But the CAG report revealed that almost “the entire (aircraft) acquisition was to be funded through debt” and that this was a “recipe for disaster” that should have “raised alarm signals” in the Civil Aviation Ministry and Planning Commission.
Another controversial Government policy, according to the CAG report, was the substantial liberalisation from 2004-05 onwards on bilateral agreements on entitlements for international operations between India and other countries that “facilitated several foreign airlines” like Emirates in tapping the vast Indian market thereby denying a level- playing field to Air India.
So, who crippled Air India? Was it the politicians in Government, the bureaucrats who managed the airline or the unions who were at each other’s throats. Former Civil Aviation Secretary M.K. Kaw believes that all three were equally responsible. Asked about the remedy, he says, “The way forward is to find a good collaborator and have a public-private partnership (PPP) model with the Government retaining only 26 percent stake in the carrier.
“I do not support a 100 percent privatisation or sale. Disinvestment of majority stake is the answer with the Government holding some stake,” says Mr. Kaw. But Jitender Bhargava, former Executive Director of Air India and an airline insider for many years, has a different prescription. “Air India’s value will not be appreciated as along as it exists. The Air India brand should not be allowed to be extinguished. That Air India with its current structure cannot survive is also a harsh reality. There should thus be a total overhaul rather than opting for shutting down or privatising it. There should be restructuring of management, abrogation of existing agreements with unions so that work practices can be made productive, efficient, customer-friendly and cost effective. Because if the company survives, employees will survive.”
Making the argument against privatisation, Mr. Bhargava says, “Privatisation is no panacea for ills as the Kingfisher example has shown.” On what ruined Air India, he says it was a mix of several factors like “Board and management with no accountability, seniority-based promotions, non induction of talent from outside in key areas and according supremacy to employee-interests over that of the airline”.
No wonder then that Civil Aviation Minister Ajit Singh recently said that the objective before the Government was to make the airline financially viable in the years to come following which suggestions (regarding a possible disinvestment or privatisation) could be considered. But it isn’t just now that such possibilities are being raised. A senior UPA Cabinet Minister had famously declared a few years ago that the previous NDA Government had considered the sale of Air India to the Tatas and Singapore Airlines between 1999 to 2004. Ironically, the national carrier itself had been started as Tata Airlines by the legendary J.R.D. Tata in the 1930s, re-named as Air India in 1946, only to be nationalised in 1953. Those associated with the aviation sector like Mr. Kaw believe an industrial house like the Tatas could be ideal buyers of Air India to restore it to its past glory. But will the wheel turn full circle? And are there any takers?