Airline is no jewel. It has accumulated losses in excess of Rs 50,000 crore and is a drain on the national exchequer
The future of Air India, the state owned carrier, is uncertain, to say the least. The government has indicated that it will have to be closed down if it cannot be privatized through strategic disinvestment by end-March when the current financial year ends.
An initial attempt to sell 49 per cent drew a blank as did a subsequent attempt to sell 76 per cent. But with Jet Airways having failed to find a buyer so far and the escalating economic slowdown affecting business prospects for all, this may be perhaps the worst possible time to get rid of a large non-profitable government owned airline one of whose chief weaknesses is too many staff.
Despite the fact that privatization may save a good number of jobs and government promise of an acceptable package to serve the interests of all the employees along with privatization, Air India unions are making a last ditch attempt to stop privatization. And they have not hesitated to call the organization a “jewel”. So it is necessary to repeat some of the by-now ancient arguments in favour of privatization.
The foremost is that the business of government is not to be in business which is best left in private hands. For the private commercial space, the government’s foremost duty is to ensure competition by removing market imperfections and promote the free flow of information so that all stakeholders can take informed decisions.
The government has enough on its hands. Some of its foremost tasks is to ensure the delivery of public goods like health and education. A role for the government may indeed be needed in areas which tend to be natural monopolies like utilities. In such situations where there is a single service provider, the absence of the disciplining effect of competition can be substituted by government regulation.
Since the latter part of the last century, successive governments have been steadily retreating from directly delivering commercial air travel services - the space in which Air India operates. This has benefited both travellers and the global economy. In India now several private airlines operate in various conditions of health. Indigo seems to be doing well for itself, SpiceJet appears to have turned around and Jet Airways lies comatose due to no fault of the government. Newer airlines like GoAir, Vistara and Air Asia are busy finding their feet.
Air India is today struggling precisely because the government hung on to its ownership for too long. In the process, it gave the airline a botched merger with Indian Airlines and some give-away bilateral agreements with West Asian carriers which have drawn adverse comments from the CAG and Parliament’s Public Accounts Committee (PAC). If the government had slowly retreated from ownership as the sector was opened up, then for all we know, Air India today would have been happy to be fending for itself.
There is a case for a government stake in a few large companies in a few sectors where they are broadly described as national companies as they are systemically important for safeguarding the national interest. State Bank of India, for example, at the behest of the government, raised hard currency by issuing bonds globally at a time when the country’s hard currency reserves had fallen critically low.
But even in this regard there is no reason why a critically placed privately owned company cannot be mandated by the government to play a nationally important role when called upon to do so. The company may be happy to give up a small part of its independent decision making powers in return for enjoying a distinctive status and the brand value that comes with it. At a time of a national emergency, any private airline should be happy to withdraw a few of its aircraft from commercial service to, for example, ferry troops.
The Unions have said that in the last three years Air India has turned in an operating profit. But in 2018-19, it made an operating loss of Rs 4600 crore, which is partly explained by Pakistan shutting its airspace. It is saddled with heavy debt and accumulated losses in excess of Rs 50,000 crore. The government has already transferred nearly Rs 30,000 crore of the airlines’ debt to a subsidiary and will likely transfer another Rs 20,000 crore to make it virtually debt free and somewhat palatable to prospective bidders. Ultimately, these losses are drain on the national exchequer and the tax payer.
With virtually the total debt likely to be written off the unions want the government to let the company be run by an independent professional management like those running L&T and ITC. (Neither has promoter families nor can be said to be truly professionally managed, that is by professionals.)
But the whole point is that this is extremely difficult if not impossible to ensure when at the end of the day, the owner is the government. An attempt was made to ensure this for public sector banks through the creation of the Banks Board Bureau but in a few years that body is as much of an adjunct of the government as any other.
Union members think that their jobs are safe under government ownership but jobs can only be safe if a company is commercially healthy and this is best ensured under private ownership. To think otherwise is to refuse to learn from recent history.Subir Roy is a senior journalist and author. The views expressed are personal.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.