Air India Revival: Policy Makers Should Plan.

Date01 July 2018
AuthorDhameja, Nand L.


Air India, the flag carrier airline of India, is the fourth largest domestic airline in the country in terms of passengers carried, after Indigo, Jet Airways and SpiceJet. It has the largest fleet of 140 planes in the country--including the brand new Boeing Dream liner planes, and flies to 41 international and 72 domestic destinations. It is the biggest international carrier from India with 14% market share and controls 14.6% of domestic passenger traffic. It reported a net loss of Rs. 3,837crore in 2015-16 fiscal and Rs. 3,643 in 2016-17.The airline has accumulated losses of over Rs 50,000 crore, and is sitting also on a debt of about Rs 55,000 crore--about Rs 22,000 crore of loans taken to finance aircraft purchase and the rest for working capital. The airline has an annual interest outgo of Rs 4,500 crore, which accounts for about one-fifth of its total turnover. Despite the staggering amount of tax payers money being infused into Air India, it continues to bleed, and drains the coffers and the banks alike.

These have been more of political gimmicks and amount to throwing good money after bad. About two decades ago, it was during 1996-97, the Disinvestment Commission, an advisory body identified 40 Central Public Enterprises (CPEs) for disinvestment, made recommendations regarding the extent and modalities of disinvestment. Of these, 20 CPEs identified as core sector companies where dis investment up to 49 percent was to be allowed, Air India was one but no disinvestments was made due to sluggish capital market (Dhameja & Sastry, 1998). Again, Naresh Chandra Committee in its Report in 2003, suggested privatization of both the airlines i.e. Air India and Indian Airlines, and creation of an autono mous civil aviation regulator; the report was shelved; and the then aviation minister, Mr. Praful Patel pushed for mod ernization of the fleet. Further, in 2012 a study commissioned by the Corporate Affairs Ministry recommended that Air India should be partly privatized; in 2013, the then-Civil Aviation Minister Ajit Singh stated that privatization was the key to the airline's survival. However, this also did not come through. Economic Survey 2017 focused on privatization of Air India and stated that while the private sector has a major presence in civil aviation, telecommunications, and financial services segments, and this has served to reduce the share of public sector undertakings (PSUs), but the PSUs have not exited these segments. Recently Niti Aayog, government's think tank, recommended for privatization of Air India quoting the examples of privatization of British Airways, Japan Airways and Austrian Airways. It was in March 2018 the Union cabinet gave an in-principle approval to a proposal for strategic disinvestment of Air India and transfer management control and sale of 76 percent stake. This paper presents the historical perspective of Air India, gives an overview of privatization experience of airlines of different countries and the lessons there from. Lastly, the paper presents strategies for successful privatization/revival of AirIndia.

Historical Perspective

The airline was founded by late J. R. D. Tata as Tata Airlines in 1932 and carried air mail from Karachi to Bombay's Juhu aerodrome. Initial service included weekly airmail service between Karachi and Madras via Ahmadabad and Bombay. In its first year of operation, the air line flew 160,000 miles (260,000 km), carrying 155 passengers and 9.72 tons of mail and made a profit of Rs. 60,000 (US$930). Later, the airline launched a domestic flight from Bombay to Trivandrum with a six-seater Miles Merlin. In 1938, it was re-christened as Tata Air Services and later as Tata Airlines. During the Second World War, the airline helped the Royal Air Force with troop movements, shipping of supplies, rescue of refugees and maintenance of planes

Post-Independence (1946 onward): after World War II, regular commercial service was restored in India and Tata Airlines was converted into a public company on 29 July 1946 and was renamed Air India Limited. In 1953 Air Corporations Act (Air India Wikipedia) was passed and all Indian airlines were nationalized by creating two corporations --one for domestic service called Indian Airlines (IA) Corporation, and one for International service called Air International Corporation later abbreviated as Air India (AI) in 1962.The undertaking of Air India was transferred to and vested in Air India Limited, a public limited company registered under the Companies Act 1956, with effect from March 1, 1994, after the Air Corporation (Transfer of Undertakings and Repeal) Act 1994 came into effect. Indian Airlines merged with AI in April 2007 as Mumbai its headquarters. The combined losses for Air India and Indian Airlines in 2006-07 were Rs. 7.7 billion (US$120 million) and after the merger, it went up to Rs.72 billion (US$1.1 billion) by March 2009.

The airline made an entry into the Guinness Book of World Records for evacuation of the most people by a civil airliner. Over 111,000 people were evacuated from Amman to Mumbai, a distance of 4,117 kilometers (2,558 m), by operating 488 flights from 13 August to 11 October 1990--lasting 59 days. The operation was also carried out during Persian Gulf War to evacuate Indian expatriates from Kuwait and Iraq.

The airline received Rs. 23,993 crore equity infusion in the year 2012 and it was a part of the total Rs30,231 crore promised by the Government under a financial restructuring plan. However, the airline is sitting on prized real estate and its had fixed assets of Rs. 46,074.07 crore as of 31 March 2016, whereas it long-tern borrowing was Rs. 35,806 crore. The airline has valuable tangible and intangible assets, which include bilateral flying rights, aircraft simulator for Boeing 777 & 787 Dream liner, thirty-three hangers, Aircraft Maintenance and Repair unit at Nagpur, a training centre at Hyderabad, besides, as mentioned earlier, a fleet of 140 planes. In addition, the properties owned included, vast land (about 32 acre) in Central Mumbai, earlier headquarter building at Marine Drive Mumbai, Housing colony (30 acres) at Vasant Vihar, New Delhi, Centaur Hotels at New Delhi, Mumbai and Srinagar. The airlines also on properties in London, Hong Kong, Nairobi, Japan and Mauritius, and some shares in Air Mauritius.

Privatization of Airlines of Different Countries

In this section, privatization process and experience of airlines of different countries are discussed. Firstly, privatization of airlines in European countries including British Airways, Austrian airways, Iberia airways of Spain and Lufthansa airways are discussed. Subsequently privatization of Japan airways, and Argentina airways are briefly presented. The privatization experiences would highlight the lessons relevant for Air India privatization and its successful restructuring.

Privatization of British Airways

The British privatization is one of the most extensive and largest programs carried out, as public enterprises in UK accounted for about 11 percent of the gross domestic product at factor cost in 1982. The privatization process in UK took the Form of denationalization and deregulation and it obtained the support from Government and Conservative manifesto in 1987 (Dhameja & Sastry, 1998).

Legislation to privatise British Airways was passed by enacting Civil Aviation Act 1980 and efforts were made to improve its financial results, to restore its balance sheet, to repay the borrowings of 100 m [pounds sterling], without assistance from the government. Later, British Airways Plc (BA) was established as a public limited company with the statutory capital of 50,000 [pounds sterling] under the British Companies Act 1980s; was issued with a certificate to trade under section 4 of the Act so as to allow it to take over the airline's business; property, rights, liabilities and obligations of the British Airways Board in the United Kingdo were...

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