Thursday, October 11, 2018

Burning more cash at Air India: New debt SPV plan is triumph of hope over experience

New Delhi: The government’s reported plan to transfer over 60% of Air India’s debt to an SPV, and to give it another 2-3 years to become profitable under another turnaround plan represents the triumph of hope over experience. If the airline has not been able to turnaround after Rs 28,175 crore of government money, it is not clear how the debt-reduction will make it more efficient, though, for a few years, the reduction in the interest burden will make it look like a turnaround story. While AI’s losses have averaged around Rs 5,400 crore over FY13-17, this number will probably balloon given how oil prices have shot up; indeed, it is surprising that, half-way into FY19, the airline’s losses for FY18 are still not public.

The fact that the information memorandum (IM) put out for the airline’s privatisation said 37.6% of its 11,000+ permanent staff would retire over the next five years means the government realised this is a problem area—while the staff can potentially be asked to leave after a VRS, if this was easy, the government would have done it prior to the sale process. And, for all the talk of the debt-light AI being run by a truly professional board, the IL&FS example makes it clear even a heavy-duty board can’t do much to change organisational culture. And for all the talk of the discipline of listing—under the plan, AI is to be listed—the fact that an ONGC should be forced to buy GSPC’s expensive assets or even HPCL makes it clear the government will continue to call the shots.
11/10/18 Financial Express