Amid speculation that Air India may be privatised, Civil Aviation Minister Ashok Gajapathi Raju said on Wednesday that there were "hardly any bakras (scapegoats) around" to buy the loss-making national carrier unless its massive debt was written off first.
Speaking to CNBC-TV18, Raju said all options were on the table with regard to reviving the airline. He said Air India's finances were bad because of legacy and other issues and turnaround plans have failed to significantly improve its balance sheet.
"Business-as-usual is not an option," said the minister, echoing statements had made the previous day. "Taxpayers' money cannot be committed for an eternity."
Raju's comments came amid suggestions from the NITI Aayog, the government's policy think-tank, that Air India's debt be written off and a strategic disinvestment should follow. It noted that world over, governments have pulled out of national carriers and India should consider following suit.
"I have a fascination for Air India and I am still searching for ideas," said Raju. "I want it to survive and don't want it to go the Kingfisher way."
Finance Minister Arun Jaitley recently said that if 86-87 percent of the market belonged to the private carriers, he saw no problem with 100 percent being run by it. Jaitley said the government was open to divesting its stake in the loss-making airline.
Air India has become a bottomless pit with thousands of crores of taxpayers’ money going into keeping the highly unionised airline afloat in the competitive sector. In such a scenario, selling the airline will not be an easy task for the government.
Air India, which has a debt of Rs 50,000 crore, has not made a net profit for at least 10 years. Half of the debt is on account of aircraft valuation. The airline claimed to have made an operating profit of Rs. 105 crores in 2015-16 but a report by the central auditor debunked that, saying the state-owned airline actually made a net loss of Rs. 321.4 crore.
The government put Rs. 5,765 crore during the two years of 2015-17 and plans to put another Rs. 1,800 crore into Air India in the ongoing financial year as part of its turnaround plan for the airline. This will go into funding the airline’s 2017-18 capital expenditure plan of Rs. 2,308 crore. The rest of the capex will be funded to the tune of Rs. 290 crores from internal resources and Rs. 218 crore as loans.
To make matters worse, the Central Bureau of Investigation has begun investigating the 2005 purchase of 27 Boeing B787 Dreamliner planes by the national carrier, not a pleasant thought for an incoming buyer.
Below is the verbatim transcript of the interview.
Q: Let me start by asking you about what I would say is the elephant in the room, we have got the Maharaja right behind you. There are reports that seem to suggest that the Niti Aayog has presented its revival roadmap to the government including your ministry. One of the options that is being talked about is writing off a significant portion of the debt that Air India currently has and then looking at the possibility of strategic divestment. Our first conversation when you had just taken over in this very room, you had told me that tax payers cannot continue in perpetuity to bailout Air India. So, where do things currently stand?
A: Air India, I have a fascination for it. It is a nice airline, it serves the country well and we wish it to survive and continue to serve the Indian skies. Now, its finances are very bad, more due to legacy issues, whatever it is. So, business as usual is definitely not an option. Governments had come out earlier with turnaround plan, financial reconstruction, but things as they appear, didn’t have a dent on the finances. So, that is what is exactly pulling it down.
So what is to be done? There is a lot of thinking going on, a lot of suggestions afloat, no decision yet but I would not like to close any option. Let us see what types of options are coming in. Of course lots of discussions have already happened, Niti Aayog has made its suggestion, and everybody wants it to be a good airline. So, that said, let us see where it takes us.
Q: The Niti Aayog is suggesting that this be put up for strategic disinvestment, the Niti Aayog’s viewpoint is that world over governments have extracted themselves out of the aviation business and there is no reason why the Indian government should continue to be in the aviation business via Air India. Is that a view that you support?
A: What we will support, what we will not support will come up later. However, no option is going to be closed at this stage. The position I am in, I will not speculate on it. So, I am searching for ideas, all ideas are open now.
Q: These ideas, the Niti Aayog is only the latest round of recommendations, there have been several committees in the past that have made recommendations on how you can turnaround Air India. So, the suggestions and the ideas have been on the table.
A: They have been on the table for too long.
Q: How long will it take for you to decide what is the best way forward?
A: I am not going to put a timeline on it, but the luxury of indefinite time has also run out. So, some decision has to come about.
Q: Would it be fair to assume that whatever the options are that the Niti Aayog has presented… (Interrupted)
A: It is not only Niti Aayog, everyone can, anyone can give ideas. There are a lot of ideas that have come in. Now why we are going to zero on what needs an analysis.
Q: Do you believe that without writing off a significant portion of the debt, strategic divestment is not going to be possible, you are not going to find a willing buyer?
A: You might be correct. There are hardly any bakras around so you can get one is difficult and businessmen are businessmen. There are limitations. One thing is for sure, the taxpayer’s money cannot be committed for eternity. So, that is one problem. Failures are there on the financial front, so, there are problems and these will be attended to.
Q: You are saying that you cannot give me an indication of the timeline but you don’t have the luxury of time to continue to consult with various stakeholders, so, would it be fair to say that maybe within the next three months, we will arrive at some sort of conclusion on the way forward.
A: We need to arrive at a conclusion at the earliest. That angle I can say, but I will not put timelines on anything.
Q: Another question that I will ask you in the context of foreign carriers being interested to come into India and there has been a lot of talk on the possibility of Qatar coming in via the fully 100 percent FDI route. I know that in your press conference yesterday, you said that Qatar has nothing to do with the plan to turn Air India around, but for instance, if there were a possibility, if the government decided to write off the debt of Air India and Qatar were to express interest, or anybody else, I am using Qatar as an example, or any other foreign carrier were to express interest in wanting to pick up a stake in Air India, would that be an option you would consider?
A: I am open to all ideas, I mentioned. I am not doing any speculation as of now. These airlines which you talked about, European basically, which were owned by the governments and these are facts, they have sold out and generally others have bought shares in it and they are going ahead. So, all options are there. No option is ruled out, no option as of date is preferred. Let us see what comes out of it.
Q: In the interim what do you do with Air India? Your colleague says that we are putting together a five-pronged winning strategy to turn Air India around.
A: Excellent, if he does it fine.
Q: You don’t sound like you are convinced by what he is putting together?
A: We have to work, more than one brain has to get applied properly on this and we are open to suggestions.
Q: What is the current situation as far as the financial health of Air India is concerned? Air India itself says that look we are already doing operating profits, they claim that they have made profits of Rs 105 crore in 2015-16, the CAG suggests otherwise. It says there is a loss of Rs 321 crore and an understated loss of over Rs 6,000 crore in the three year period between 2012 and now. So what do we make of the financial health of Air India as of today?
A: My understanding, it did not have an operating loss. With a company of that size not having say an operating profit of only that much is no profit at all. The idea is that it is capable of performing, so, that much it has demonstrated. Let the auditors sort out these problems and let them do their discussions. What we need in government is to come to some conclusion. Personally I would like it to survive, I don’t want Air India to go the Kingfisher way, it should not happen that way.
Q: Survive without the government being the principle shareholder?
A: Whether it is government, or private, an airline if it survives, it can serve the people, otherwise it can’t.
Q: Have you had conversations with your colleague, Finance Minister Arun Jaitley because he has made public statements about the fact that he would like… (Interrupted)
A: We do a lot of discussions, but I would not share it with you at this time.
Q: Let me then talk about one of the big achievements or milestones that your ministry has achieved and that is regional connectivity scheme (RCS) or the Ude Desh ka Aam Nagrik (UDAN) scheme. I understand that there are now other listed entities like Interglobe Aviation who are also interested, so far it has only been SpiceJet from the listed space that has been interested in the RCS. What more can we expect now, there is the possibility of some changes even within the RCS, exclusivity being reduced, the cap on the number of seats being enhanced. What can we now expect in round two of the RCS?
A: There are five airlines that had participated and they had started functioning. By September I think we will be getting a lot of hitherto unconnected destinations. Say like right now you could say 70 years into independence, 72-73 destinations, now in the first shot itself you are getting about 30-33 unconnected destinations. So, it is good, the reach is increasing and that is how it should be.
Now, to develop a route, it takes a bit of time. That is why this viability cap funding is limited. So, the airline is expected to develop the route and to protect it that is why exclusivity was brought in. Now there is also another thinking that if a place has the potential, then exclusivity might pull the economic activity down also. So that thinking is also there. However, as we go on, we learn from our experiences and go ahead.
Q: One of the other triggers that country is waiting for is the goods and services tax. The aviation sector in that sense will not really benefit from the GST rollout because ATF is outside the ambit of the GST. The revenue secretary in his conversation with me said that for airlines it is largely going to be neutral. What is your own assessment given the fact that ATF is out of the GST?
A: You have a very high rate of tax at certain places. Somehow historically the thinking was this is the rich man's prerogative. So, tax heavily. However that no longer holds. It is obvious that aviation has an impact on other economic activities and it contributes to the economy. So, that thinking is there.
Q: Will airlines be worse off or neutral post the GST?
A: I think post the GST with petroleum products out of it and if state governments decide that their roles ought to be to promote aviation and bring down the VAT on ATF, it will balance out things otherwise there is a problem.
Probably within the country cargo also is minuscule. There was a mind-set that though India has good markets somehow cargo in aviation is for export out of the country and import into the country. We see that aviation can also contribute in the strategy of increasing rural incomes. Probably GST might have a role there because India is becoming one market. So, it could help there. Let us see how it comes.
Q: One of the other possibilities that is being talked about is whether we are going to see any further changes to the FDI norms related to the aviation sector. 100 percent FDI is allowed but foreign carriers cannot go beyond 49 percent. Is there any consideration at this point in time to tweak the FDI norms?
A: FDI was earlier 49 percent automatic. Recently our commerce department has come out with 100 percent FDI and how to take it forward is still to be worked out. So, that is getting worked out.
Q: This is public information that Qatar has looked at the possibility of entering India. Have they reached out to you formally or informally about whether they now intend to go through with their plans or have they decided to hold back for now, what is your own sense?
A: I myself read it in the newspaper and heard it from reporters and things like that. Qatar has not approached the ministry saying they are interested and they would like to have something. So, in that sense there is no concrete proposal. Let us see how it develops.
Q: Airport modernisation is another item.
A: It is important.
Q: It is important. The metro airports, atleast, Mumbai and Delhi already running out of capacity leading to a fair degree of consternation as far as passengers are concerned. What can we expect? And as far as the Navi Mumbai airport is concerned, 2019 is a date that is not going to be met. So, what is the new realistic timeline?
A: I would put it this way. The traffic in Mumbai, the number of movements, they are crossing 52 movements. They are becoming equivalent to Gatwick. Mumbai should have had a new airport 20-25 years back. It is a premier city in India and human efficiencies have gone up, so you are able to handle that many movements. So, it is a very constrained airport. It needs another airport. Mopa is going to beat Mumbai by that work has already started there. But Mumbai needs it and India is losing out.
So, they have talked about Navi Mumbai a bit too long. I myself have done two aerial surveys there. Soon as I came here, I wanted to see Navi Mumbai because it is a premier city of the country. It needs an airport.
A: Then another few months back again I did a survey. In two years, from the air nothing is visible on the ground. That time, there was another government. They had their own dates. So, we requested the state government to please come, do this, they are giving us some dates. Government of India will work with the state government to achieve whatever they set up.
Q: So, what can we realistically expect then, forget Navi Mumbai for a minute, but what can we realistically expect in terms of the modernisation programme? What will get done over the next two years? Leave Navi Mumbai aside, but outside of that, the six other airports that were up for modernisation where work is in different degrees or stages, what should we realistically expect?
A: This Rs 17,000 crore plan of AAI is for infrastructure strengthening and changing and upgradation is okay. There is nothing wrong with that plan, but the way aviation has growth, you will have to throw open a lot more infrastructure to the private sector. If you do not do that, you are getting into trouble. Mopa is Goa is in the private sector. They have started the work.
So we need a few more airports on the east coast probably two more, on the west coast probably two, then a place like Delhi itself you will need some firming up. Certain state governments decided on certain airports, then they did a flip-flop on those things. So, there is a problem. Aviation is a Government of India subject, land is a state subject and unless you have an airport, it is not going to work, unless you have land, it is not going to work.
Q: Let me also ask you, since you are talking about Air India and whatever option the government does decide to take forward for Air India and you talked about infrastructure as being the big priority for your ministry, in that context, what should we expect or what should we realistically hope that could happen as far as the airport's authority of India is concerned?
A: Airport's authority of India has certain airports which are problematic in the sense, they are not designed to take that type of loads that they have. In certain places, they have capacities which have been unutilised for extremely long time. So what Airports Authority, there also like Patna, how do you develop it? It has got its limitations. Already it is handling almost double of its capacity. So, like this, you have an airport. Then you have an airport like Aurangabad put up. There are hardly any footfalls there. The capacity is not going to be utilised unless something dramatically changes. So these type of mismatches, they are tremendous. So we would like to have a realistic plan which will help and we are working on it.
Q: So, would it be fair to say that at least as far as 2017 is concerned, that Air India is going to be the priority as far as your ministry is concerned, whether it is strategic divestment, whether it is part divestment, privatisation completely, whatever the case maybe, is Air India going to be the number one priority for your ministry and for your government?
A: Air India is one aspect. Infrastructure will help all airlines, whether they are public sector or private sector. It will help the country itself and probably your unutilised potentials can be utilised. Right now, I feel that cargo in India, by and large, nobody has really looked at it. Probably it is not that glamorous. So we are trying to get them to look at cargo because that is where the money is. The world's largest airline is a cargo airline. An airline like Lufthansa which started with passengers has a considerable number of cargo air freighters now. And in India, we have only a country our size and our potential, we have only Bluedart.
Q: So what will you do specifically to ensure?
A: So we have taken on a consultant. We are trying to because this is one place which can contribute to incomes. We need to rise to our potentials.
Q: How do you assess the three year performance of your ministry? We are all looking at what has happened and what continues to be on the unfinished agenda, but how would you assess your own performance over the last three years?
A: It has been interesting. We are the world's fastest growing in terms of passenger traffic. In fact, in domestic terms we have landed the third largest, in international fourth largest. So, certain potentials definitely have been harnessed and it is interesting and this growth appears to be having a future because a lot of airlines are ordering aircrafts and not involving the tax payer's money there. So, there is judgement.
Q: So will things for Air India, because you are talking about tax payer's money, till you arrive at a conclusion on what the future of Air India looks like, will it be pause for now because the plan is also to add international routes and so on and so forth. So, what do we expect in the interim?
A: They have to work. They have to continue to work and they are working. It is not that everybody should just come to a grinding halt and do nothing. It is not that. They will continue to work and let us see what happens.
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