Anand Mahindra says he is not brave enough to buy Air India, here is why

Air India's reign over the skies ended years ago. Once the premier Indian airline, the hugely indebted carrier now survives on a government-paid bailout package that manages to drag it forward but costs immensely to the exchequer.

Written by Kanishka Singh | New Delhi | Published: June 29, 2017 5:18 pm
team mahindra, mahindra racing, formula e race, berlin, anand mahindra, Felix Rosenqvist, sports news, indian express Anand mahindra, Vice-Chairman and MD, Mahindra Group at Mahindra Towers, Worli, Mumbai. Express Photo by Dilip Kagda

Air India’s reign over the skies ended years ago.  A premier Indian airline in its heyday, the Government-owned carrier is now burdened with debt and losses and had to be bailed out in the past with taxpayers money. It is no surprise that the Cabinet has finally given the nod for divesting the Government’s stake in the national carrier.

Taking over ailing companies and turning them around is sometimes profitable, but Anand Mahindra doesn’t appear to share the view, at least when it comes to Air India. When asked on Twitter whether he would invest in the debt-ridden Air India, Mahindra replied saying: “I see myself as a generally courageous person…But I confess..I don’t possess THAT much courage…”

Mahindra’s success journey is marked with risks and taking on industry leaders. Mahindra, who was initially invested in manufacturing tractors and heavy vehicles, diversified his business interests and challenged the monopoly enjoyed by Tata in many sectors. He created an aviation ecosystem where his company now makes small aircraft and is in the process of launching flight operations to boost the country’s regional connectivity.

So, the company has the pedigree, the experience, the money and the right mixture of leadership. Then why is Mahindra so wary about investing in Air India?

Back in the day, Air India was called the Maharaja of the Skies. But the Maharaja is now unable to support himself without his privy purse. The biggest challenge facing the government is deciding whether to write off Air India’s Rs 50,000 crore debt or restructuring it. It government had already sanctioned a Rs 30,000 crore bailout package for the airline, most of which had already been released. Still, the financial situation of the airline didn’t seem to improve much. Two years ago, the airline posted an operational profit for the first time after around a decade. The profit was projected to rise in coming years. However, the overheads negated the positive growth and under reporting of losses observed in a CAG report raised questions on the financial management of the carrier.

The government has failed to arrest it down slide for years and its decision to not privatise the airline has only made matters worst. It would be futile to sell its stake if the aim is to only raise money and inject funds into Air India, as it wouldn’t solve the management issues plaguing the carrier. Only a change in ownership would make sense if the airline is to actually see a turnaround in its fortunes. Reports suggest some Indian airlines and even foreign airlines have expressed interest in buying stake in the airline, however, the quantum of divestment is yet to be decided by a ministerial group.

A series of bad decisions related to acquisition of planes, operational routes and more has reduced Air India to its current state. Its competitors like Jet Airways, IndoGo, Spice Jet, Go Air, Vistara etc took a big chunk of the market share away from Air India. The government’s decision to purchase 111 aircraft for Air India and Indian Airlines at a combined cost of Rs 70,000 crore back in 2006 had hurt it the most. The Comptroller and Auditor General questioned the government’s decision regarding the purchase and why it was funded by debt. It also called the merger of the domestic and international carriers as ill-timed and said that “the financial case for the merger was not adequately validated prior to the merger.”

Over the years, flight delays, poor in-flight services, an aging fleet and frequent cancellation of flights pushed fliers towards private carriers. It would be best if the government exits majority control and allow private hands to manage the carrier. A calculated sale of non-core assets could also reduce the amount of debt on the carrier for now. It is also important that it shouldn’t be perceived as a distress sale. Nonetheless, the government would want to probably keep some stake and not go for a 100 per cent — though the department of investment and public asset management allows that option for divestment.

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