Air India still on a wing and prayer. Is it time to privatise it?

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26 Aug, 2025 12:21

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Shishir AsthanaMoneycontrol Research

Air India could finally be getting on the nerves of the government. In an interview with Financial Express, Ashok Gajapathi Raju, the Civil Aviation Minister, said the Rs 30,000-crore bailout plan charted out in 2012 to save Air India has not solved problems. “TAP [Turn Around Plan] or the financial reconstruction plan were good intentions and money has been infused from the government’s kitty, but it has not solved any problems,” said the minister.

On the operational front, there are signs of a turnaround with improvement in passenger load factor, on-time performance and utilisation of aircraft. However, the company is facing a legacy issue which is pulling the national carrier down.

And so it begs the question: is it time to privatize the national carrier?

Its high operating costs do not leave room for the airline to take advantage of low aviation fuel prices the way other aviation companies do. As a result, the company barely makes any operating profit. In fact, it did turn profitable at the operating level in FY16 after a decade of losses.

Air India has over the years managed to pile up Rs 51,367.07 crore of debt. It managed to reduce it by Rs 5,000 crore by opting for a sale-and-lease-back of its wide-bodied Dreamliners. One would think that a similar arrangement can take care of the remaining debt, but the company has a debt of only Rs 15,900 crore on account of aircraft acquisition. There is a working capital component of Rs 7,500 crore, but it’s the remaining debt which cannot just be wished away.

Reports say that banks have refused to convert their debt to equity, learning from the Kingfisher experience that by converting it they lose all recourse to recovery. Also, Air India being an unlisted company, would first have to be listed for the banks to be able to sell their holding and recover money.

There are a few alternatives available to the airline and divestment is not one of them. Many observers had spoken of divesting government’s stake in the company but the question is who in their right mind would want to pick up a company that is barely making operating profits, is on the verge of defaulting and carries a mountain of debt.

The optimists would argue that the airline has a market share of 62 percent of international travel and there is value to be unlocked in its real estate and land holdings. Government is already trying to unlock the value of its real estate by selling it in parts. As for the market share, it comes with the baggage of huge operation costs. Any strategic investor would not be keen to operate an airline with the cost structure of Air India. Further, with an average employee age of 50, Air India stands a pretty good chance of being given the cold shoulder by suitors.

As the TAP period comes to an end over the next few years the aviation minister sounded gloomy that the airline will be at the same place where it started at the beginning of the exercise. No amount of restructuring seems to be helping the company as government and management are trying to work out a solution to improve operational parameters.

The problem, however, is in the balance sheet of the company with its huge debt.

An impassionate approach is needed to handle the Air India issue where surgical strikes will cut the company to size and make it a mean machine. Since government will never take such decisions the only way out is to privatize the airline and let professionals manage it with a free hand.

There are enough precedents globally to suggest how privatization has helped national carriers survive. Some of the most renowned airlines like British Airways, Lufthansa and Qantas have all being privatized and are flying successfully.

The only difference between Kingfisher and Air India is the taxpayer’s money which is still funding the latter. Kingfisher was abandoned by its promoter who could not raise more funds to keep the airline afloat. Air India, which was in a worse scenario, has survived thanks to successive governments allowing taxpayer money to be routed to the company.

Though the minister has realised that it can’t support the airline perpetually, there are a few avenues available to it now. Privatisation and handing it over to professionals to call the shots is the only way for it to survive, irrespective of what Air India’s union thinks. Tax payers should no longer be made to provide oxygen to a company that is technically comatose.

The time to decide is now as private players like SpiceJet is now planning to cut prices in international route, the mainstay of Air India.