A reign ends

The Centre's decision to sell 76 per cent stakes in Air India is welcome. The aviation sector opened up since the economic reforms of the 1990s. Hence there is no compelling reason for the government to run a commercial airline. This is a matter of economic logic, which enables the released resources from the sale to be spent on more important sectors like health, education and the environment. Commercial aviation is best left to the market and the concept of a national carrier makes little or no sense in the modern world. In this context, the reaction of the West Bengal chief minister, Mamata Banerjee, is unwarranted. Opposing privatization as a matter of ideology is passé. Ms Banerjee must realize that the old world socialist ideas of the 1970s have proven to be unworkable in the global economy of today. There is no going back. Her criticism betrays a lack of clarity of vision.

  • Published 4.04.18
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The Centre's decision to sell 76 per cent stakes in Air India is welcome. The aviation sector opened up since the economic reforms of the 1990s. Hence there is no compelling reason for the government to run a commercial airline. This is a matter of economic logic, which enables the released resources from the sale to be spent on more important sectors like health, education and the environment. Commercial aviation is best left to the market and the concept of a national carrier makes little or no sense in the modern world. In this context, the reaction of the West Bengal chief minister, Mamata Banerjee, is unwarranted. Opposing privatization as a matter of ideology is passé. Ms Banerjee must realize that the old world socialist ideas of the 1970s have proven to be unworkable in the global economy of today. There is no going back. Her criticism betrays a lack of clarity of vision.

However, the timing of the divestment may not be ideal from the government's point of view. Air India is stuck with losses to the tune of Rs 468.05 billion and outstanding debt to the tune of Rs 487.81 billion as of March 31, 2017. This huge economic burden would weigh down the revenue likely to be obtained from the sales besides deterring prospective buyers to bid for the deal. Air India has an impressive list of fixed assets though, including a fleet of 138 aircraft. It also has landing rights in 54 domestic and 94 international destinations, including code-sharing arrangements with other international carriers. Air India is also a very old surviving airline from the 1950s. Most of the big carriers of those days are no longer in existence. Hence the organization still has some brand equity left.

Will Air India be considered an attractive buy? It is unlikely. There has to be some added sweeteners, such as restructuring a part of the debt. It could also entail the downsizing of the organization - especially reducing fixed costs - before the sales. Buyers do not like to go through unpleasant exercises immediately on acquisition, not with Indian labour laws. It is also not clear as to why the government wishes to retain 24 per cent control. Air India, whatever be its immediate fate after privatization, will remain a classic example of government failure. Overstaffing, abuse by VIPs and poor service quality made the airline low priority with paying passengers. The sheer neglect in efficiency considerations has made the entity economically fragile. Trying to sell it off as fast as possible is not an indication of good economic management. The 'Maharaja' of the Indian skies may have to end his reign with a bad and bumpy landing.

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