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Air India sale opens up a brighter future for aviation

Rajiv Pratap Rudy writes: The government can now shake off the allegations of protectionism, foster fair competition, rid the civil aviation market of distortions, and enhance the opportunity for travel.

A woman walks past Air India building in Mumbai, India, Friday, Oct. 08, 2021. (AP Photo/Rajanish kakade)

On October 8, 2021, we achieved a monumental landmark, a culmination of the process that began in 2001 during the Atal Bihari Vajpayee-led government. The Government of India has successfully disinvested 100 per cent of its stake in Air India, 100 per cent in the low-cost airline Air India Express Ltd and 50 per cent in the Air India SATS Airport Services Private Ltd. The resolve and conviction of the government in general, and the Prime Minister in particular, to revitalise India’s loss-making PSUs by changing their governance model is reflected through this.

The airline was losing Rs 20 crore each day with its debt having mounted to Rs 65,562 crore by August, 2021. It has lost more than Rs 5,000 crore each year since 2016. Its accumulated losses of Rs 70,875.98 crore resulted in the complete erosion of the net worth of the company. Now, its net worth is a negative Rs 44,000 crore. Air India also has 12,085 employees, including 8,084 permanent employees, while Air India Express has 1,434 employees. It has outstanding employee dues of Rs 1,332 crore as per the Justice Dharmadhikari report with employee benefit expenses being above Rs 3,000 crore each year. Air India also has a fleet strength of 213 as of August, 2021, and incurs huge costs to maintain this fleet.

Covid-19 has had a dramatic impact on the aviation sector. A report by the International Civil Aviation Organisation notes that due to the pandemic, the financial losses of airlines across the world have been around $370 billion, with airports and air navigation services providers losing a further $115 billion and $13 billion respectively. With Air India having to operate charters/Vande Bharat Mission flights, fixed costs had to be incurred even as its revenue stream was impacted due to the discontinuation of flights during the lockdown. The net loss incurred by Air India was about.

Rs 9,779 crore as per the provisional figures for the year 2020-21, a 22.5 per cent increase from the previous year. Clearly, despite the best efforts of governments over the years, the airline’s financial condition continued to worsen in the absence of a competitive operational structure.

The airline’s sale also sheds light on the vision of the government when it comes to maintaining competition in the aviation market. We are already seeing a hike in prices of air tickets and at such a point, it would be imprudent to allow any kind of monopolistic tendencies to set in the market. With an airline already commanding more than 50 per cent of the market share, the closure of Air India would have left a space, with a high probability of the already leading airline taking up a major share of the market, leading to unfair competition.

In 2017-18, Jet Airways had the second highest market share (14.6 per cent), following Indigo (40.9 per cent). After Jet shut down, Indigo commanded a 47.8 per cent market share in 2019-20, which rose to 58.6 per cent as of June 2021. Another airline’s exit would have further concentrated power in the market. Moreover, a debt-laden airline only adds burden on the industry, while stretching government finances. Thus, the sale of Air India, which is now to be managed by a more competition-conscious organisation, in a free aviation market, is a welcome move.

Tata Sons has a gargantuan task ahead of it with accumulated losses, non-operational fleets and the after-effects of Covid-19. It will take at least two years for the Tatas to stabilise its operations. We can hope for the airline to operate efficiently post this. There is also a possibility of this sale having an adverse impact on the whole of the Tatas’ aviation ventures in the short term. However, synergies between the group’s other aviation ventures, Vistara and AirAsia, could play an important role in the long run. The Tatas have a proven history of turning around ventures on the brink of collapse, like Jaguar Land Rover. We need to place our trust in the professional management that the company prides itself on.

There has been a lot of apprehension and anxiety amongst the employees of Air India. Leaving the airline without a viable continuity plan in place would have financially crippled their households. However, the fact that no employee can be retrenched for a year, and that any employee to be released in the second year will be offered a voluntary retirement scheme, along with the government promising to pay off all past dues, brings a sense of relief. With the economy only just starting to show real signs of growth post Covid-19, job security for individuals is an important consideration that cannot be ignored. It is the far-sightedness of the government that has resolved this long-awaited question.

The government can now shed its tag of being the arbitrary protector of a bleeding enterprise, further burdening taxpayers who have put Rs 1,10,276 crore in the airline since 2009-10. From now, apart from the government-backed guarantees and the remainder of debt in the special purpose vehicle, Air India will not pose a further burden on the government’s finances.

The government can now shake off the allegations of protectionism which it has carried for the last seven decades, foster fair competition, rid the civil aviation market of distortions, and enhance the opportunity for travel. This is a major step forward towards revitalising the limping tourism sector.

This is a chance for India to expand its aero footprint. Post this sale, we can envision a brighter future for not just the civil aviation market, the employees of Air India and the government, but for the common man as well.

This column first appeared in the print edition on October 16, 2021 under the title ‘Free to fly high’. The writer, a Member of Parliament, was former minister of civil aviation.

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