Why it makes sense to allow foreign players to bid for Air-India

The Air India divestment process is on the home stretch with EY, the consultants to the process already having made a presentation to the Aviation Ministry. While there is no decision yet on the roadmap ahead, a media report said that the government is contemplating allowing foreign airlines to bid for the national carrier.

The news has been enough to get the red flag atop the Air India building, with unions suddenly realizing that the airline is an asset which they can endlessly exploit, and not a liability.

Successive governments have failed to turn around the airline. A loss-making Air India with nearly Rs 50,000 crore of debt cannot be supported unendingly by taxpayer money. The airline needs to stand up on its own or be allowed to perish. The airline needs to be run like a business enterprise and not a social obligation.

Having said that, Air India’s divestment needs to be evaluated from all its stakeholders’ viewpoints, namely, promoters, employees, customers and finally the company as an entity itself.

First is the owner, which in this case is the government, using taxpayers’ money as oxygen to keep the terminally ill patient alive. Unfortunately, that is what the status of the patient is: he is just being kept alive. There is no money available to strategically plan for the future. It’s better for the promoter to salvage whatever it can from the deal and pass the company onto stronger hands that can help unleash its true potential. To be fair, the government needs to be congratulated for having the courage to privatise the airline.

Second are the employees, who are still getting their salaries only because Air India is the national carrier and the government comes to its rescue irrespective of the size of its haemorrhages. All this even as poor cousin airlines from the private sector go through trying times, with their promoters unable to arrange a line of credit the way the government does.

It would not be an exaggeration to say that Air India’s customers are a disgruntled lot. Its top spot has been snatched away by IndiGo. From delays to service standards, the complaint list is long. That in a price-conscious market like India, the airline is not able to fill its seats despite having one of the lowest tariffs speaks about the reluctance of the customers to fly it.

And finally, Air India as an entity itself deserves a lot better. Better management, better employees, and bigger pockets. The ‘Maharaja’ of Indian aviation has seen better days and deserves a shot at those days again. It was once the pride of the country.

But should that stop the company being sold to a foreign airline?

For those waving the red flag, it should be known that at the Air India is a company, a loss-making one that too. It’s not a historical monument that is being put up for sale.

It is not the first time that a flag carrier is sold to a foreign player. Air France and KLM of Netherlands were merged, British Airways along with Iberia, the flag carrier of Spain, were merged and became part of International Airlines Group (IAG), which has Qatar Airways as one of its biggest shareholders. Qantas of Australia was sold to British Airways.

The point is that at the end of the day prudent business sense should decide the divestment process rather emotions. For the government, as the promoter of Air India, not only the money that it will receive by way of selling the company should matter but also the growth plans of the new promoters. The employees should be welcoming a stronger promoter with deep pockets, one that can withstand fierce competition, both in domestic and international markets.

In the airline sector, Air India is by far the most eligible bachelor. Restricting it to only suitors from India will not fetch the government the right valuation. Air India needs a big gust of wind under its wings and not just a gentle whoosh.

Oil prices have again started their upward journey; Indian players are the most vulnerable to such a situation. Selling the airline to an Indian player who will be rattled by oil price swings will defeat the purpose of selling Air-India. For the sake of the airline, it would be better to pass it on to a promoter who will have the funds to keep it flying.

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