The privatization of AI heralds the end of taxpayer-fueled operations; deleterious effect on industry prices, wages
When full-service airline Jet Airways went out of business in April 2019, it was the result of several triggers that boiled up – systemic factors like soaring crude prices and an unfavorable exchange rate. ; reasons related to the evolution of the industry such as the growth of low cost flights, in addition to poor decision-making by the management and promoters of Jet Airways. But an underlying factor was Air India.
For much of its life, Jet Airways competed directly with Air India in the high end segment, and a near endless supply of taxpayer money at regular intervals to the common carrier meant that Jet and others Indian airlines had to fight against an airline that constantly had its losses subsidized. This has had a deleterious effect on benchmark tariffs and wages in the industry. The privatization of Air India marks a break with this trend.
From an upstart that spurred the growth of travelers to India to a sick white elephant that has dragged the entire industry with itself to some extent, Air India has gone through many phases. As the government prepares to sell the airline to its founders, the Tata group, the Indian aviation sector could witness a transformation in the quality of the services offered, as well as in its general health.
The Air India turnaround plan approved by the Center in 2012 provided for an injection of Rs 30,231 crore into the airline through 2021, assuming this would help the airline to consistently improve its overall financial and operational performance. But despite the injection of funds, Air India continued to suffer heavy losses. The exercise effectively became an exercise to finance the losses of Air India, which distorted the competitiveness of the airline sector.
Since 2011-12, when the recovery plan came into effect, the government has injected equity capital of Rs 30,520.22 crore into the airline through 2019-2020. In fiscal year 21, the government did not inject equity capital into Air India. However, during the year the Center provided a guarantee of Rs 964 crore to raise new working capital loans from banks. In addition, the government also granted a loan of Rs 4,500 crore to the airline from the National Small Savings Fund (NSSF). Between 2009-10, until the government handed the airline over to the Tatas, it reportedly invested a total of over Rs 1.10 lakh crore to support the loss-making airline.
“There is no denying that Air India relies heavily on government support. To a large extent, it is the decisions of the government that have caused these huge losses and debts. The second part is that Air India should fly to certain locations to meet the expectations and promises made by the government – not because the flight operations will be economically viable. It was seen as a social airline for government auctions, more than a commercial airline. It couldn’t be compared to an IndiGo or any other private airline, ”Jitinder Bhargava, former Air India executive director, told The Indian Express.
However, despite a level playing field that the country’s domestic airlines may face after Air India divestment, Bhargava said the Tata Group could make Air India a tougher competitor than before.
“There will be a qualitative and quantitative improvement of Air India once the divestment is completed and the Tatas take over. Cash-strapped Air India did not invest in upgrading passenger amenities, aircraft interiors, so the product took a beating in those years. Once the improvement arrives, other private airlines will not have it easy. Government ownership meant unproductive practices, inefficiencies, etc. Once it’s not there Air India would be a strong airline, ”he said.
For Tatas’ aeronautical push, the acquisition would be a boost and give it the opportunity to consolidate its position in the company. In 2015, the Tata Group launched an airline as part of a 51:49 joint venture with Singapore Airlines. He also owns 83.67% of the capital of the low-cost airline AirAsia India. Industry sources say that once Tata Group once again reunites Air India under its umbrella, it may consolidate its airline operations.
However, although on paper for the Tata Group this would mean a significant lead, especially in the international segment, it appears that the conglomerate would decide every aspect of the airline based on how much value it adds before moving on. make an investment call.
In a 2019 interview, Tata Sons Chairman N Chandrasekaran said, “This is not about Vistara or AirAsia. I think you should look at it like for some reason we have companies, but ultimately we’ll have to see what those companies think. We need to have a discussion because he adds, what does it add and what are the pain points. We have to take a calculated call. It’s not just an easy call to say we will or we won’t ”.
“It’s easy to say we don’t want to do this because we have two airlines. It is also like saying that you will get lots of routes and lots of time slots, you can upgrade immediately. So at the first line level, there is an argument to say yes or no, but none of these decisions are made with just one line. Basically, in my opinion, if we have a business, whatever business we operate, all of those businesses have to become efficient, have to scale up, have to create value and we have to look at that, ”he said. he said in an interview with CNBC-TV18.
This is also not the government’s first attempt to cede control of Air India, nor the Tata group’s first attempt to regain command of the airline. In 2001, the conglomerate and Singapore Airlines were set to take Air India back from government, and industry insiders suggest it was Jet Airways and its founder Naresh Goyal who lobbied heavily against the privatization of Air India.
As the Tata Group, once again, two decades later, draws closer to Air India ownership, Jet Airways is hoping to get back up and running after going bankrupt in 2019.