Thursday, January 11, 2018

What India can learn from Italy about selling its national carrier

India’s cleared the path for 49% foreign direct investment (FDI) in Air India, possibly the most decisive move yet to privatise the national carrier over a decade after the idea was first mooted.

While the Tata group, Ajay Singh-led SpiceJet, and Qatar Airlines are said to be interested in it, there has been just one official expression of interest—from IndiGo airlines—since the government took a call to put Air India on the block six months ago.

Foreign airlines queuing up for the Maharaja will, however, do well to remember the episode involving the privatisation of Alitalia, Air India’s Italian peer.
After many turbulent years living on taxpayers’ benevolence, Italy’s national carrier was privatised in 2008. The government sold its stake to a group of Italian businessmen who eventually passed it to Abu Dhabi-based Etihad Airways. The middle eastern airline bought a 49% stake in Alitalia in 2014. However, the latter’s operations continued to spiral.

Finally, in May 2017, Alitalia filed for bankruptcy for the second time in less than a decade. The Italian government had to extend another bridge loan of $655 million to keep it afloat through the bankruptcy process.

Air India’s flightpath, too, has been argued over for a decade while it bled money despite government support. Finance minister Arun Jaitley was in charge of divestment back when its privatisation was first proposed in the early 2000s under the Atal Bihari Vajpayee government. The move was, however, junked altogether.

Like in Alitalia’s case, India has also said that Air India will stay with Indian nationals even after the government exits the cockpit. While this message may caress nationalist sentiments, foreign bidders are unlikely to pay two extra pennies for posturing.

Moreover, the runway to Alitalia’s privatisation included controversy, with Wikileaks alleging cronyism in the deal that subsequently triggered huge outrage in Italy. And India has a propensity for such incidents, with charges of kickbacks and cronyism upended India’s telecom spectrum sale in 2008, as also all the coal mine allocations made since 1993. So, foreign investors may well be wary with Air India.

The Alitalia experience shows is that no matter who owns the airline, the business must be fundamentally competitive, and the privatisation process above board, to survive. The question for whoever goes on to own Air India is whether they have the nerve for tough decisions, including pay cuts, layoffs, cutting back routes, and asset sales.
11/01/18 Sriram Iyer/Quartz