That the strategic disinvestment of Air India would be a failure was a foregone conclusion well before the end of the deadline for the expression of interest from bidders. India may be one of the fastest growing aviation markets, besides China, which is reflected in the growth in passenger traffic in almost all the major metros and capacity constraints at the country’s top airports. Yet few would have expected any investor to buy an airline weighed down by a debt of over Rs 33,000 crore, a bloated workforce, with the government planning to retain 24 per cent of Air India equity.
The government would be better served if it jettisons attempts to tweak the norms for sale and instead adopts the course which it often advises private firms to follow — the bankruptcy or insolvency route. Today, investors and firms have realised that it is better to buy distressed firms which are put on the block by creditors rather than put money in a state-run airline. The bidding for Binani Cement and Bhushan Steel are a case in point as is that of Ruchi Soya, which may be far more attractive for an investor than an airline with a market share of a little over 13 per cent and legacy issues. The government’s timing of the sale, too, is awry — with rising fuel prices and competition from nimble low cost carriers squeezing the margins of the bigger players in the industry both in the domestic and global aviation markets after a stable period of low oil prices and sustained profits. And the latest earnings of some of the listed aviation firms, including Jet Airways, reflect the hit on account of higher oil prices. Air India is a textbook case of yet another state-owned firm in India run to the ground after the opening up of the economy and the failure of the state to retreat from non-strategic and competitive sectors. It is a measure of the operational success of late entrants, such as private peers Indigo, that they have managed to gain a market share of close to 40 per cent even as the state-run airline continued to flounder.
As early as 2003, the Naresh Chandra committee had said that deregulation and privatisation were the way forward in the aviation industry. The neglect by successive governments has come at a huge cost in terms of infusion of public funds and value destruction. Any more waffling on this will mean shifting the burden further on to taxpayers.