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AI privatisation heralds end to taxpayer-fuelled ops; deleterious effect on industry fares, salaries

For much of its lifetime, Jet Airways competed directly with Air India in the premium segment, and near-endless supply of taxpayer money at regular intervals for the state-run carrier meant Jet and other Indian airlines had to contend against an airline that constantly had its losses subsidised.

Written by Pranav Mukul | New Delhi |
Updated: October 9, 2021 7:56:59 am
Tata Sons Chairman N Chandrasekaran

When full-service airline Jet Airways wound up operations in April 2019, it was a result of several triggers coming to boil — systemic factors like surging crude prices and an adverse foreign exchange rate; reasons relating to industry’s evolution like growth of low-cost flying, in addition to poor decision making by Jet Airways’ management and promoters. But an underlying factor was Air India.

For much of its lifetime, Jet Airways competed directly with Air India in the premium segment, and near-endless supply of taxpayer money at regular intervals for the state-run carrier meant Jet and other Indian airlines had to contend against an airline that constantly had its losses subsidised. This had a deleterious effect of fares and salary benchmarks in the industry. Air India’s privitisation marks a break from this trend.

From an upstart that spurred flyer growth in India to an ailing white elephant that dragged the entire sector along with itself to an extent, Air India has been through numerous phases. As the government gears up to hand over the airline to its founders, the Tata Group, the Indian aviation sector could witness a transformation in the quality of services offered, as well as its general health.

The turnaround plan for Air India approved by the Centre in 2012 envisaged infusion of Rs 30,231 crore in the airline till 2021 under an assumption that it would help the airline consistently improve its overall financial and operational performance. But despite the fund infusion, Air India continued to incur heavy losses. The exercise effectively became one to fund Air India’s losses, something that distorted the competitiveness in the airlines sector.

Since 2011-12, when the turnaround plan came into effect, the government has infused equity of Rs 30,520.22 crore in the airline till 2019-20. During FY21, there was no equity infusion by the government into Air India. However, during the year, the Centre provided guarantee support of Rs 964 crore to raise new working capital loans from the banks. Additionally, the government also extended a loan of Rs 4,500 crore to the airline from the National Small Savings Fund (NSSF). Between 2009-10, till the government has handed over the airline to the Tatas, it would have invested a grand total of more than Rs 1.10 lakh crore to support the loss-making airline.

“There is no denying that Air India is relying heavily on government support. To a large extent, it was the decisions of the government that brought on these huge losses and debts to the book. The second part is that Air India is expected to fly to certain places to meet the expectations and promises made by the government — not because the flight operations are going to be economically viable. It was deemed to be a social airline to do the government’s bidding, more than a commercial airline. One couldn’t compare it with an IndiGo or any other private airline,” Jitinder Bhargava, former Air India Executive Director, told The Indian Express.

However, notwithstanding a more level-playing field that the nation’s domestic airlines might experience following Air India’s disinvestment, Bhargava said the Tata Group could make Air India a tougher competitor than before.

“There will be a qualitative and quantitative improvement in Air India once the disinvestment is through and the Tatas take over. A cash-starved Air India has not been investing money in upgrading passenger amenities, aircraft interiors, and so the product has taken a beating in these years. Once the improvement comes, other private airlines will not have it easy. Government ownership meant unproductive practices, inefficiencies, etc. Once that is not there, Air India would be a strong airline,” he said.

For the Tatas’ aviation push, the acquisition would come as a big fillip and gives it an opportunity to consolidate its position in the business. In 2015, the Tata Group launched an airline in a 51:49 joint venture with Singapore Airlines. It also holds 83.67% stake in the low-cost airline AirAsia India. Industry sources say that once Tata Group brings Air India under its umbrella again, it could consolidate its airline operations.

However, while on paper, for the Tata Group this would mean a significant leg up, particularly on the international segment, indications are that the conglomerate would decide on every aspect of the airline based on what value it would add before making an investment call.

In a 2019 interview, Tata Sons Chairman N Chandrasekaran said, “It is not about Vistara or AirAsia. I think you should look at it as for whatever reason we have got companies, but eventually, we will have to see what those companies think. We need to have a discussion because does it add, what does it add and what are the pain points. We have to take a calculated call. It is not just an easy call to say we will do it or we will not do it”.

“It is easy to say we do not want to do it because we have two airlines. It is also equal to say that you will get a lot of routes and a lot of slots, you can scale immediately. So, topline level there is an argument to say yes or no, but none of these decisions are taken with one line. Essentially, in my opinion, if we have a business, whatever be the business that we operate, all those businesses have to get efficient, have to get scaled, have to create value and we have got to look at that,” he said in an interview with CNBC-TV18.

Neither is this the government’s first attempt at ceding control of Air India nor is it the Tata Group’s first attempt to regain command of the airline. In 2001, the conglomerate along with Singapore Airlines came within touching distance of taking back Air India from the government and industry insiders suggest it was Jet Airways and its founder Naresh Goyal that had heavily lobbied against Air India’s privatisation.

As the Tata Group once again, two decades later, inches towards owning Air India, Jet Airways hopes to take back to the skies after going belly up in 2019.

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