Everyone had given up on Air India and its privatisation. The sudden spurt of interest seems to have arisen from a casual statement of the minister. The issue is not whether the company should be privatised or not, but the ability to privatise it. Who would like to take over a company that is on its deathbed?
In the earlier privatisation effort in 2000, there was just one bidder. The bidder wanted protection of bilateral rights of Air India for a fixed number of years.
Since then, Indian private carriers have begun operating on lucrative overseas routes. Many bilateral agreements have been entered into, giving phenomenal rights to other foreign carriers. Dubai, Singapore and Abu Dhabi have become hubs of India-originating traffic, while Air India has not succeeded in creating a hub in India.
The second issue relates to a foreign carrier being a part of the bidding group. It was said that a foreign carrier’s access to the domestic market would hurt existing companies in India. These arguments have become obsolete in light of the recent developments. There appears to be an effort to ensure a seamless domestic market for foreign carriers. That, in effect, reduces the appeal of Air India.
Third, any bidder would like to leverage the existing assets, both real estate and rights, to improve cash flows. There will be a hue and cry about the new management selling off assets and the government parcelling these assets into an SPV before privatisation. The new management would not see any value in the company without the assets. There is also the possibility of some bidders looking at the value of such assets alone, and not caring for the airline.
Fourth, the mess created by the hasty and unplanned merger of Indian Airlines and Air India needs to be sorted out.
It is a moot question as to whether the government will absorb the accumulated losses and agree to fund the annual losses of about Rs 5,500 crore for an agreed period.
Air India should be privatised only after restoring it to some degree of health so as to realise value and enable it to compete with others. The Government should not interfere in the management of the airline. Perhaps the best option would be to hand over the company for management alone at this stage, with financial support being linked to the achievement of milestones. The option to partake in the equity of Air India could be a carrot at the end of an agreed period.
Read also: >Can privatisation work for Air India? Yes
(The author was Secretary to the Government of India and served in the Aviation Ministry.)