Time to privatise Air India
Airline business globally is under severe strain. Very few airlines are able to keep their heads above water. This is largely because it’s highly capital intensive and thus puts a premium on efficient use of resources—something which Air India was never able to manage. Its monopoly status and easy revenues from its Gulf operations bred inefficiency. Employees became laid back and were almost continuously on agitation.
The HR problem was made worse by overstaffing, expensive and unproductive employees. Efforts to introduce productivity linked incentive (PLI) also backfired, leading to an unfortunate situation where PLI payments have ballooned while performance has been deteriorating. In a majority of cases, PLI payments are several times employees’ salary.
The big blow, of course, was the merger of the two national carriers. Ever since nationalisation, the two carriers developed very different work cultures and a strong rivalry. Integration of these disparate cultures as also the multiplicity of unions brought its own problems.
What can Air India do? It is suffering an operating cash loss of about Rs 150 crore per month. There is an additional burden of Rs 250 crore on account of repayments for new aircraft purchases. Fierce competition and high fuel prices are steadily eroding margins.
Given the spiralling fiscal deficit and more legitimate demands for investment in social and physical infrastructure, it is hard to justify a large bailout package for the public carrier. It may well amount to throwing good money after bad. IPO? The government has wisely ruled this out. Who would subscribe unless the government is able to arm twist its own financial institutions?
The big question is whether Air India can transform itself into an efficient, lean and mean organisation. Can Air India become a low-cost carrier? According to media reports, the government has issued such a direction. It’s a tall order indeed. It could mean halving the employees’ strength. Anyway, hard business sense and not political whims or emotions must dictate actions. Certain cost-cutting measures could be explored.
The employees’ costs require rationalisation. The PLI deserves immediate attention as it is apparently as large as the annual operating cash loss. All unions must be engaged to strike a reasonable bargain. Unfortunately, AI unions have so far not shown any positive reaction. Additionally, the aircraft-acquisition plan needs to be revisited and substantially pruned.
Considerable resources can also be raised by selling family silver. AI assets must be worth several thousand crores—the Nariman Point building itself should be worth a couple of thousand crores. With some emergency transfusion from the government, these measures could help Air India weather the present liquidity crunch.
There are some other options which can be seriously considered. The government has, in the past, looked at the Singapore Airlines model where the airline focusses on flying with related commercial operation and utilities divested to subsidiaries. This approach will considerably improve the operations as well as address the HR problem.
Also today, the national carrier concept has lost ground and the objective should be to privatise the airline as soon as possible. The government would do well to divest as soon as some measure of health is restored.
Ravindra Gupta is a former civil aviation secretary
