Air India Disinvestment: How Political Maneuvering and Financial Risk-taking killed an Airline?


Air India has been bleeding heavily and continues to do so even at this point. The airline has been the worst performing public sector undertaking incurring annual losses to the tune of Rs 5,000 crores on an average. In July 2017, the airline had an accumulated debt of Rs 52,000 crores. According to an airline consulting firm CAPA, the airline is estimated for losses in the range of Rs 9,750 crores in 2018-19 to Rs 13,000 crores in 2019-20. The government which had approved the strategic disinvestment of the airline in June last year had on May this year stated that it had not received any bid for its decision to sell its 76% equity share and also transferring the management to private players. If the disinvestment would get through, Air India’s debt would reduce from around Rs 50000 crores by the end of March 2017 to around Rs 33,000 crores by the end of sale. It has already received Rs 26000 crores till 2012-13 under the bailout plan which was approved by the UPA government and is set to receive another Rs 30,000 crores by the end of 2021. Till 2013-14, it was getting around Rs 3000-4000 on an average equity infusion every fiscal and after that, the amount has been gradually reducing and has been Rs 650 crores for the year 2018-19. Due to its constant bleeding, there is a huge possibility that airline might even shut down if the disinvestment programme fails.

For the disinvestment to succeed, we find out that there has been a complete lack of interest from the private players. One of the major reasons seems to be that the new buyer would inherit a debt of Rs 24,576 crores out of a total debt of Rs 48,781 crores owed. Also, the remaining 24% stake would be retained by the government thus continuing its constant interference.  For a private entity these conditions are a way too onerous.  The government has categorically stated that the winning bidder cannot merge the airlines with its existing businesses until the government holds a stake. The winning bidder would also have to abide by the terms and conditions including employee interests thus restricting its ability to cut its staff strength. Air India is already a heavily unionized public sector undertaking and these unions have a considerable influence on any attempts to curtail its powers.

If we analyze the reasons behind Air India’s continuous downfall the airline has always been subject to the whims and fancies of politicians due to its government ownership. The systematic dismantling of the company was at its peak during the time of UPA 1 when the then NCP politician Praful Patel took charge as the Civil Aviation Minister. This had been brought to the forefront by a CAG report of 2011 which had stated serious financial irregularities during his tenure owing to the purchase of aircrafts at a cost of Rs 50000 crores when the company’s turnover was only around Rs 7000 crores. Another major reason for its downfall could be attributed to the disastrous merger between Indian Airlines and Air India in 2007. Indian Airlines was the market leader during that time with a 42% market share but the merger dented its profits and it suffered huge losses after inheriting a loss of 10000 crores to begin. Also during that era the government in order to promote the spread of private airlines and carriers started giving out lucrative routes to private companies that allowed them to make profits at Indian Airlines expense, thus reducing the overall revenues of  the airline from 40% to 10%.  All these bad policies led to the sinking of the airline.

Air India provides a classic example of how-to first sink and then sell off a   Central public sector undertaking (CPSE). Its sinking has everything to do with politics where the existence of an enterprise is depended on the ownership and control rather than performance. It remains to be seen what the government can do to save this sinking ship as virtually all methods have been exhausted as of now. Complete privatization of the airline as suggested by a recent Niti Aayog report, selling it off to an equity firm or the extreme suggestion of closing it down completely and writing off the losses are some of the measures. Since huge amounts of tax payers money has been already been wasted to recover the Maharaja and not much has been achieved so far, it is perhaps in everyone’s interests that the government sells off all its stake and relieves itself of managing the national carrier. This would primarily involve protecting the successful bidder from all the political interference and also amending the debt and labor conditions involved in the contract for the disinvestment to succeed.