Tuesday, June 12, 2018

Why the government should wind down Air India

New Delhi: Does the government actually plan to do anything to get rid of the loss making Air India before the 2019 elections? I would suspect not. There seems to be a remarkable lack of interest in actually trying to get rid of the carrier. First there were all those onerous conditions that the government put in when it asked for bids. And when not a single bid came in by the deadline, the government seems simply content to carry on as it was doing before the bids were invited. Indeed, the news coming out is that the RSS and its affiliates like the Swadeshi Jagran Manch would prefer the government to continue running the ailing Maharaja. And if that is not possible, they would like a minority equity sale, with some amount of Air India stock being sold to either retail investors or to institutions like LIC etc., and they think that it will be the long term solution to the Air India problems.

I suspect the government would like to go slow till the elections. All politicians know that Air India is an albatross around the neck of any government, and it sucks up tax payers money year after year, even as its services and market share deteriorates. Equally, no political party is going to let go of the opportunity to castigate the government for selling off the national carrier. The Congress and the CPI-M have been among those who have already made enough noises on that score. With general elections coming up in a year's time, why would the government want to give them one more thing to criticize it.

However, politics aside, it would be a terrible economic decision if the government actually decided to hang on to Air India or tried to transfer partial ownership instead of selling it lock, stock and barrel. Despite regular talks about how Air India is improving efficiency, cutting losses, and even making operational profits, the hard fact is that the airline has been losing market share regularly, and it is too dependent on government handouts to keep on flying. Even today, there is news coming out that its cash flow situation is so bad that it is waiting for some money from the government to pay out salaries. The operational profits it talks about is a mirage - the fall in crude prices in 2014 to 2016 and the attendant lowering of aviation fuel prices allowed it to save some face. Now that aviation fuel prices are going up again, it is likely to start posting operational losses once again.
11/06/18 Prosenjit Datta/Business Today