During the Question Hour in Parliament recently, Civil Aviation Minister, Ashok Gajapathi Raju stated that the government did not want the beleaguered national carrier, Air India, to go the Kingfisher way and become defunct. Minster of State for Civil Aviation, Jayant Sinha, also reiterated that there are no plans to reconsider the disinvestment decision of Air India and that a ministerial committee, headed by Finance Minister Arun Jaitley was looking into the process of disinvestment of the airline.
As per the details tabled by the Aviation Ministry in Parliament, Air India has stacked up a massive debt of Rs 51,890 crores over the last decade. The airline is currently surviving on a Rs 30,000 crore bailout package that was extended by the UPA government in 2012. Once the country’s largest carrier, Air India’s domestic market share has also dipped to 13 percent amidst competition from private and budget airlines.
On June 28, the Union Cabinet gave the green signal, setting the stage for the disinvestment of India’s national career, as per the recommendations of the NITI Aayog. According to reports, to lessen the burden on the potential buyer, the government has decided to keep the working capital debt, which is around Rs 30,000 crores out of the company, while the remaining Rs 19,000 which has been taken to finance the purchase of aircraft, will be transferred over to the new buyer.
What airlines will gain from buying Air India
Despite the massive mountain of debt that it has inherited, buyers are showing interest in Air India. Among one of the first to show an ‘unsolicited’ interest in buying stake in the national carrier was IndiGo’s parent company, InterGlobe Aviation. The airline had mentioned, in a letter, that it would be interested in buying the international operations of Air India and its low-cost wing, Air India Express.
The Tatas, the original founders of the airlines, might also be in the race for the airlines, though no one from the Group has confirmed it yet. Internationally, Qatar Airways has also reportedly shown interest in the carrier, however, according to reports the government is looking at domestic buyers only. While both the Bird Group and Turkey’s Celebi have shown interest in Air India’s ground handling operations, according to a report from the Times of India, Jet Airways and Spicejet might also join the bid for the airline.
One of the biggest strengths that Air India can offer its potential buyer is its leadership in overseas passenger traffic. The airline controls 18.6 percent of international traffic, making it the largest international carrier out of India. For an airline like IndiGo, which already has a lead in the domestic market – a 41 percent share, buying the international operations of Air India will help it realise its ambition of expanding internationally, as well. Currently, IndiGo flies to 7 destinations abroad, and 41 in India, while Air India flies to 44 international destinations. In addition, Air India also has a huge fleet of 118 aircraft, which include a variety of wide-bodied aircraft.
For the Tatas, Air India brings an emotional attachment – the airline was started by J.R.D Tata as Tata Airlines, in 1932 and ran it until it was taken over by the government in 1956. Also, Vistara, which is a Tata Group-Singapore Airline joint venture, will benefit from the bigger planes that Air India has in its fleet.
The airline also has prime property in various metros, membership of the Star Alliance and slots at international airports. However, according to reports all the non-core assets of Air India, including its real estate will not be up for sale, and will instead be part of a become part of a Special Purpose Vehicle.
A white elephant
However, despite the advantages that Air India has, it still remains heavily in debt – a burden that not many companies would be able to bear. Earlier attempts at saving the loss-making airline have failed. In 2012, an elaborate turnaround plan was cleared by the then UPA government. This included extending a Rs. 30,000 crores bailout package under a financial restructuring plan and the airline is currently surviving on that. As of 2016-17, the Ministry has infused an equity amount of Rs 24,745 crores into the airline, upon which the airline is surviving.
Other plans as part of the bailout package also included hiving off engineering and ground handling services and developing them into separate profit centres over a span of 12 years. However, none of these have worked out.
The airline’s huge fleet size may also pose a problem for the buyer. IndiGo, as a policy has only one type of aircraft, which is credits for its operational efficiency, while Air India has regularly procured different kind of aircraft from both Boeing and Airbus. This large fleet is also one of the reasons for Air India’s losses. Under the UPA 1 government, then Aviation Minister Praful Patel had acquired 111 aircraft at a cost of Rs 70,000 crores. 50 aircraft had been ordered from Boeing, while more than 40 were from Airbus. According to a CAG report, out of these total, a number of Boeing 777s and Boeing 737s were grounded between 2007 and 2009. This resulted in a loss of Rs 840 crores.
Adding to the woes, the first set of Dreamliner aircraft that the airline had ordered in 2005, were delivered in 2012, after a delay of nearly four years. The aircraft have also been mired in problems, and many have had to be grounded, adding on to the losses. Four more Dreamliners are expected to be delivered in August 2018.
Along with an oversized fleet, Air India also has among the worst staff-to-aircraft ratio of around 108 per flight – the merger of Air India with Indian Airlines also added on to the high manpower. Back in 2012, though, the ratio was much higher at 262. Since, then, a sizeable portion of its staff have been hived off to other units such as ground handling, engineering and MRO services. The government had also toyed with the idea of offering voluntary retirement services (VRS), to its employees to bring down the high manpower. This was abandoned in 2014 after the government realised that it would have to shell out around Rs 10,000 crores to 5,000 employees if they were to take the VRS route.
Employee unions have also been protesting any moves to disinvest the airline. After news of possible disinvestment had come out, seven of the airline’s unions had banded together to protest against it, with Air Corporation Employees Union (ACEU), which is a grouping of Air India’s non-technical staff, calling the move arbitrary.
In addition, whoever takes on the bleeding airline will also have to work wonders to turn around the poor service image the airline has acquired through years of mismanagement. Delays, cancellations, poor quality of aircraft, customer service issues have all contributed to Air India being ranked third among the world’s worst airlines, as per aviation insights company Flightstats.