Monday, October 11, 2021

Air India’s privatisation comes two decades late, but taxpayers should be relieved

Drop in at Air India Ltd.’s Mumbai office in early 2001, and you might have come across an elderly, white-jacketed man winding up the clock. With 17,400 employees and just 24 planes — three times the staffing level at major U.S. airlines — silly tasks like timekeeping in the headquarters had become someone’s job description.

Still, optimism was in the air back then. With India seeking to sell its national carrier, half a century of accumulated sloth was about to be shed. And yet, the privatization plan collapsed, and took 20 further years and billions of dollars of wasted capital to be reassembled again. Finally, when the global travel industry has been ravaged by a pandemic, Prime Minister Narendra Modi has managed to let Air India go.

Two decades ago, the airline was valued at $4 billion by the pilots’ union. Compared with that, the winning bid of 180 billion rupees ($2.4 billion) by the Tata Group — from whom Air India was wrested by a socialist-minded government in 1953 — is a pittance. More so, as cash payment to New Delhi will account for only 15% of the consideration. The rest will be debt assumed by the new owner, a Mumbai-based conglomerate that also controls Jaguar Land Rover and runs India’s largest computer-software firm. Even after the deal, $6.2 billion in borrowings will get left behind and become explicit state liability.

Yet the transaction makes sense. Selling Air India was never only about the proceeds. The carrier was a symbol of all that can go wrong when a state lacking the ability to deliver basic services like health and education starts competing in the commercial arena. Modi’s goodbye to the indolent Maharajah — the airline’s mascot — will buttress his government’s reform credentials at a time when the economic recovery from Covid-19 is still tentative and uneven. With the future of global travel mired in uncertainty, knowing that taxpayers won’t have to keep coming to the airline’s rescue is a boon for stretched government finances.

In 1953, a newly independent India made a huge blunder by nationalizing Tata Airlines Ltd., which had managed to build a culture of customer service, something that vanished — along with ashtrays designed by Salvador Dali — in the drab, dreary socialism of the late 1960s. The carrier became a den of entitled employees dancing to the tunes of bureaucrats and politicians.

Air India always had valuable parking slots at airports like Heathrow and bilateral flight rights. But it didn’t have planes to fly the routes. By the late 1990s, it was clear that the government couldn’t carry the burden perennially. But intense lobbying by Jet Airways India Ltd., the largest private-sector carrier back then in the Indian skies, defeated the 2001 privatization plan to cynically doom the more efficient competitor that might have emerged. The then-aviation minister bragged about not letting even a nail of Air India go out of the state’s control. Then, reversing the decision to sell, a new government decided to beef up Air India with a $10.8 billion fleet expansion and an ill-advised merger with Indian Airlines, the domestic state-owned carrier. Profit disappeared forever. Debt piled up.

11/10/121 Andy Mukherjee/Print

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