Air India’s disinvestment

What is the issue?

The once-iconic Air India has, in the last four decades, witnessed a calamitous fall.
The diminution had been gradual but the pace of descent intensified when it faced competition.

What is the story behind?

DCI’s recommendations - In the late 1990s, the government recognised the gradual decline in the airline’s service standards.
The government referred it to the Disinvestment Commission of India (DCI), which recommended dilution of government ownership to 40%.
Failure - But, the effort of the-then government didn’t succeed due to,
1. Bureaucratic shenanigans and
2. The role of a private airline promoter who saw in a resurgent Air India competition for his then-fledgling airline.
Had the disinvestment efforts succeeded, Air India would have today been a professionally managed successful airline.
The period commencing 2004 hastened the airline’s descent due a series of reckless decisions like acquisition of aircraft in unaffordable numbers; and the merger with Indian Airlines.
Competitively, the airline was also placed on a weaker wicket due to a liberal distribution of shares out of seats to foreign airlines, allowing them to dominate the Indian skies.

What was the impact of the lack of strategic direction?

Air India’s precarious financial situation was first made public in June 2009 by the then-Chairman.
The government, instead of tackling the core problem (the lack of a strategic and operational direction within the airline), it decided to focus on a financial package.
The bailout package of over ₹30,000 crore (being infused over an 8-year span ending 2021) has not helped Air India evolve into a robust carrier.
Factors - The airline’s survival depends on several factors,

Induction of a professional management with an effective leadership.
A sound financial package that does not come with political interference in its day-to-day operations.
Unions allowing changes in work conditions and pay packages.

NITI Aayog’s recommendations - In 2017, it recommended disinvestment.
But the government decided to retain 24% equity and also wanted the acquirer to absorb a major chunk of the non-aircraft related debt.

Is there any opposition to the disinvestment?

Air India evokes emotions and a lot of people are averse to its sale.
They cite its glorious past, the yeomen service it has provided to the nation by evacuating Indians stranded anywhere in the world, etc.
It is therefore critical that an environment is created where in all major stakeholders are convinced that disinvestment is the best way forward.
The reality is that major stakeholders are being kept in the dark.
Besides the Opposition political parties, unions are also opposed.
Successive Chairpersons have ‘claimed a turnaround’ in Air India’s fortunes, which are now being cited as a reason by unions and politicians for opposing the disinvestment course.
The stark truth of the airline’s performance without government props needs to be effectively explained with facts and figures.

What should the government do now?

Now, the government has put Air India on the block for disinvestment.
However, it still doesn’t appear to be convinced of the airline’s strengths.
The disinvestment process is largely driven by the Centre’s anxiety to get rid of the airline, so that it can spare itself of the responsibility of further infusion of funds.
Besides playing to its strengths, the government ought to ensure that it exits totally.
By this, the government will give freedom to the acquirer to transform Air India into a successful player.
The cost of further infusion of funds if the exercise is allowed to fail mustn’t be overlooked.
To evoke interest in a product that still commands a sizeable market share and has an extensive global network that no other Indian carrier can match, the government also needs marketing skills.

Source: The Hindu