Express Economic History Series: From private to public to private, how civil aviation has come full circle

65 years ago, Nehru’s government nationalised JRD Tata’s airline, rejecting his plea for a ‘strong, efficient Indian air transport system’ and ‘justice for investors and staff’. The government has now conceded it can no longer carry the burden of Air India and its accumulated losses of Rs 50,000 crore, and wants to divest

Written by Shaji Vikraman | Published:July 7, 2017 12:38 am
air india, tata air india, jrd tata, air india history, jrd tata air india, jrd tata airlines, ratan tata, air india tata, air india debt JRD Tata with Jawaharlal Nehru and S Radhakrishnan. Express Archives

In November 1952, after a meeting with JRD Tata, Prime Minister Jawaharlal Nehru wrote to the industrialist to assuage his feelings following the government’s decision to nationalise Air India — one of the world’s top airlines at the time — and Indian Airlines, which operated on domestic routes.

“I was very sorry to notice your distress of mind when you came to lunch with me the other day. You told me that you felt strongly that you or the Tatas, or at any rate, your air companies had been treated shabbily by the Government of India,” Nehru wrote. “Indeed, you appeared to think that all this was part of a set policy, pursued through years, just to do injury to your services in order to bring them to such a pass that the government could acquire them cheaply.

“You were in such evident distress… that I did not think it proper to discuss the matter with you,” Nehru continued in the letter dated November 10, 1952. “Nor indeed am I writing to you… with any intention to carry on an argument. But I feel I must… try… to remove an impression from your mind which I think is totally wrong and is unjust to government, to me as well as to you.”

JRD, India’s aviation pioneer and its first licensed pilot, who had founded Tata Airlines in 1932, believed there was a conspiracy afoot to suppress Indian civil aviation and, in particular, his enterprise. Nehru went on to explain that his government was of the view that “transport services of almost all kinds should be state owned”.

“Indeed”, he wrote to JRD, “so far as the Congress is concerned, we laid down this general policy about twenty years ago. It is true that the policy could not be implemented for various reasons and we gave it no high priority. But the matter was discussed on many occasions. It was chiefly the lack of finances that prevented us from going ahead.”

The Prime Minister pointed out that after Jagjivan Ram became Communications Minister in 1952, the matter of India’s airlines had come before the cabinet on several occasions, and the government had, after a thorough examination, decided to organise them together under the state. The government was mindful of the excellence of Tata Air Services and especially Air India International, Nehru said, but a committee appointed to examine the issue had recommended that it would be difficult to isolate Air India International.

“The purpose of my writing to you is to remove the impression from your mind that any policy has been pursued by us with the deliberate intention of acquiring them later after their value came down. Both from the civil aviation and the defence point of view, we have naturally been anxious to develop aviation in the country. Our eagerness to do so may have gone too far. A situation arose ultimately when we were driven to a certain conclusion,” Nehru concluded.

But JRD could not be persuaded. He was convinced that the Communications Ministry’s nationalisation scheme was not sound, and would not result in the creation of an efficient and self-supporting air transport system.

“If as appears from your letter, the government has already decided upon the adoption of this scheme, I can only deplore that so vital a step should have been taken without giving us a proper hearing,” he said in a telegram to the Prime Minister. “[Russi] Mody and I were called by Mr Jagjivan Ram only to be informed of the government’s decision to nationalise the industry, although I told him that I had prepared and brought with me an alternative scheme which in my humble judgment was better calculated to achieve the government’s objective,” JRD wrote.

He mentioned that the Minister had sought his view only on questions of compensation and the like. “I beg you to believe that I am motivated by no self-interest in this matter,” he told Nehru. “My only anxiety is to see a strong and efficient Indian Air Transport system built up and at the same time to see justice done to investors and staff who have suffered heavily.”

JRD’s appeal went in vain. In 1953, the government nationalised all airline assets and established Indian Airlines and Air India International, which was later named Air India.

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Well over six decades later, the wheel has come full circle. On June 28, the union Cabinet gave in-principle approval for disinvestment of Air India, whose accumulated losses are now over Rs 50,000 crore. Over the years, faulty policies, manpower mismanagement, and competition from aggressive private airlines have resulted in falling passenger revenues. This March, a report of the Comptroller and Auditor General debunked Air India’s claim of an operating profit in 2015-16.

Twenty years ago, the United Front government appointed a committee headed by then Petroleum Secretary Vijay Kelkar to restructure Indian Airlines (then separate from Air India) which had been hit badly by the grounding of a large part of its fleet by the V P Singh government in 1990 following a controversy over its Airbus aircraft. Kelkar argued strongly for compensating the airline for the sovereign’s action — but the committee’s report and then Civil Aviation Minister Jayanthi Natarajan’s pleas to the Finance Ministry yielded little.

After talking to employees, the Kelkar committee recommended that Indian Airlines should go public — with the government controlling 40% and employees and trust, 11%, with the rest held widely as part of the restructuring. The committee indicated the solution should be market-driven, but saw no merit in a merger with Air India. By then, India’s skies had been opened up, and several private airlines were giving Indian Airlines stiff competition.

In 2003, the Atal Bihari Vajpayee government set up a committee headed by former Cabinet Secretary Naresh Chandra to assess the civil aviation sector, including the need for a government-owned carrier. The panel noted that half a century ago, privately owned Air India had held pride of place in global civil aviation — it may not, therefore, be appropriate to view the issue as one of ‘national prestige’, and any airline, public or private, which is an efficient carrier, ought to be just as much a source of national pride. In the US, the committee said, United Airlines and American Air had taken over the mantle of ‘national carrier’ from the erstwhile PanAm and TWA.

Deregulation and privatisation, the Naresh Chandra committee said, was the way forward in air transport services. It suggested a creeping denationalisation, moving gradually with the conversion of loans into equity, among several other recommendations. The committee’s final report was presented to the UPA government when Praful Patel was Civil Aviation Minister. RBI Governor Urjit Patel, who was then with IDFC, had a significant role in the committee’s work. In fact, Naresh Chandra and his colleagues on the committee, recognising the crisis in the state-owned carriers, had attempted to persuade Ratan Tata to consider looking at them, given the Tatas’ historical links with aviation. But they were disappointed.

The Vajpayee government also received the recommendations of the Disinvestment Commission headed by G V Ramakrishna, but baulked at privatising the carriers — even though it did go ahead with other state owned firms. The UPA government merged Indian Airlines and Air India to form the National Aviation Company of India Ltd or NACIL, which was later renamed Air India Ltd. The merger is now seen to have accelerated the slide and destroyed value. The UPA remained disinclined towards privatisation of Air India, and instead approved a huge capital infusion plan in excess of Rs 31,000 crore.

Sixty-five years after JRD’s telegram to Nehru, it would be interesting to see whether the government’s decision on Air India leads to the strong and efficient industry, along with justice to employees, that the father of Indian aviation had hoped for. Justice, today, ought to include justice also for taxpayers, who have funded the carriers’ losses for long. As a Group of Ministers led by Finance Minister Arun Jaitley begins work on the modalities of disinvestment, it is sobering to note that Air India’s domestic market share is now a mere 13%.

shaji.vikraman@expressindia.com
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