Air India should be partly privatised, says study

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Loss-making national carrier Air India should be partly privatised as private investors will focus on maximising profit and in turn solve the carrier's operational issues, a study commissioned by the Corporate Affairs Ministry has said.

"Bringing in private players and capital to operate India's national carrier will help address some of the airline's operational issues, while freeing government funds for other purposes".

"Partially privatising Air India would create incentives for the carrier to compete with other airlines, since Air India's private investors would seek to maximise return on their investment," said the Study Report on 'Competitive Framework of Civil Aviation Sector' of the Indian Institute of Corporate Affairs (IICA).

However, Civil Aviation Minister Ajit Singh recently ruled out any move to privatise Air India as government was pumping in Rs 30,000 for its restructuring. IICA had nominated Nathan India as consultants to carry out an analysis on competition-related issues in the civil aviation sector.

The report pointed out that the Air Corporation Act 1953 provided a legislative framework within which the Government could provide funds for capital expenditures as well as potential bailout funds for the national carrier.

However, "this regulation gives Air India an unfair competitive advantage, by creating a framework through which it may apply for government financial assistance. The Act lacks competitive neutrality with regards to airlines in terms of access to government funds for capital expenditures and potential bailout," it said.

The report further said the regulation which prescribes that operational plans submitted by the national carrier would be considered before allocation of traffic rights to other eligible applicants, was deterrent to competition in the market.

"This rule lacks competitive neutrality in assigning traffic rights. In order to increase its customer base, Air India will take the best available routes, thus maintaining an unfair competitive advantage over other eligible Indian international carriers," it said.

The report recommended that aviation regulator DGCA should consider abandoning preferential international route assignments to the national carrier, which would allow private carriers to compete with Air India.

Taking away Air India's right to priority route assignments, it said, would also help other Indian international carriers expand service to additional global destinations, leading to expansion in the range of choices for consumers.