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Saturday, July 22, 2017

India decides to privatise its state airline

Steeped in debt for decades the airline was limping along forcing the current government of India to privatise it

Happy tidings have arrived from Delhi indicating the decision of the Central Cabinet to privatise Air India. A very bold decision for a vital economic reform that, perhaps, only this government could take blocking the drain that it had become on government finances.

Though crowned a “Maharaja”, recent reports indicated as if the national carrier Air India had gone bankrupt. An order of a consumer forum given at the state level and later confirmed by the Central Forum for payment of Rs. 15,000/- as compensation to a petitioner for deficiency in services exposed the Airline’s financial ill-health. A cheque issued by it in compliance of the order bounced for the reason that the account had no balance. Like the feudals of yore the so-called “Maharaja” has been hit by inclemency.

It is indeed in bad shape. A news item recently said that the staff are going to cut down on their allowances and perks in order to improve the Airline’s financial health. One supposes this kind of realization among the staff has come rather late in the day. It was the excesses of the pilots, the cabin crew and other serving or retired employees during its heydays that contributed in no mean manner to usher in the current difficult times of the Airline.

A report in the Telegraph of United Kingdom said that some of the “staggering” losses of Air India were due to exceptionally generous staff benefits. Pilots used to stay in five-star hotels in the US and would commute only in limousines, serving and retired pilot and crew would take business class seats ahead of paying passengers. There was a time when paying business class passengers would be shunted off to rival airlines at Air India’s cost to accommodate the airline’s own staff. Thus the largesse distributed after negotiations with the unions practically did the Airline in. On top of that there were the demands of the politicians, bureaucrats and other VIPs for special considerations regardless of the costs. One cannot also forget Air India’s “free companion service” which the supposed VIPs made generous use of.

There were various views that were being aired regarding the Airline’s future. An overwhelming section wanted its privatization as otherwise its revival, if attempted, would set the government back by as much as Rs. 52000 crores. But the thinking in the government was for reviving it, whatever, it took. The government seemed to have been of the opinion that it should have an airline which could be used in times of emergency. There have been several instances when the planes of Air India were used to rescue Indian citizens from hostile and dangerous situations in foreign lands. If privatized the government would have no hold on the airline resulting in developments that could turn out to be uncomfortable for it. More importantly, politicians perhaps did not wish to let go of a milch cow that remained at their beck and call and offered unabashed preferential treatment to them.

Surviving on the bailout package of Rs. 30000 crore provided by the last UPA government in 2013, its continuance as a public sector airline seems to be uncertain. Niti Ayog has suggested outright divestment and privatization of the airline. Nonetheless, the government is trying to monetize the Airline’s vast assets in India and abroad. Only recently The Pioneer reported the Airline’s assets sale plan had badly floundered. No bidders came forward to participate in the auction of the national carrier’s properties at prime locations in Mumbai, Bengaluru and Thiruvanantapuram. The Airline had planned to raise around 80 crores from its fixed assets monetisation plan but this has, for the time being, failed to materialise – a rude setback to the airline.

The larger question, however, is how a thriving and reputed airline as Air India slid down to such a level that it has had to contemplate hiving off of its solid assets to raise a few crores. Pritish Nandi, a poet, a movie maker, a painter, an admirer of Air India as it used to be and a past MP to boot, has put it succinctly in one of his recent blogs that things started going drastically wrong for the Airline as competition arrived. While, according to general belief, competition improves standards and the existing companies prepare themselves to take on the new arrivals.

Unfortunately, this did not happen with Air India, not because it was incapable of facing competition but because it was “strongarmed” by its political masters to cede ground to its competitors in which they had developed stakes. Nandi, therefore, comes to that unmistakable conclusion that Air India did not “lie down” and allowed itself to die; it was “murdered in broad daylight” so that its rivals could gain. While the air traffic was burgeoning, instead of readying itself to meet the new traffic surge, it allowed the “ministry” to give away the traffic to others. The untenable excuse was “globalization and an open skies policy”.

This contention finds an echo in the Neera Radia tapes which the Income Tax department recorded while snooping on Radia’s Vaishnavi Consultants. The department happened to stumble upon the murky dealings of the Civil Aviation Ministry. Radia had become privy to goings on in the Civil Aviation Ministry when Praful Patel and his cronies were trying to get into Air India Rattan Tata to hold and take the blame for the mess they had made. As Tata used to be Radia’s client she had researched Air India and had come to the conclusions that painted Praful Patel as the villain.

According to Radia, the politicians who were involved in the deals would have sold the airline to its competitors. She points her fingers at Jet Airways and King Fisher airlines. The idea was to “strip” its assets and then hand over the Airline to Naresh Goel and Vijay Mallya. The bilateral agreements on profitable routes had already been handed over to a Middle-Eastern airline for which the protagonists raked in, according to Radia’s estimates (and one has no reason to suspect her judgment), around $ 3 to 4 hundred million.

This is not all. Even when the Airline was performing at a loss it was made to place orders with various manufacturers for as many as 111 planes. Radia asks where would they have flown the planes to, (including Boeing 787 Dreamliners with a capacity to fly more than 300 passengers) when all the profitable routes had been sold off. The talk at that time was how could an airline with turnover of just Rs. 7000 crore go on an aircraft buying spree costing Rs. 70000 crore. Some of these aircraft have later been sold and taken back on lease in order to pay back the loans. That does not help much; while the Airline’s finances (as also its reputation) were ruined those in authority, the villains, walked away with the kickbacks.

The CBI has now commenced Preliminary Enquiries (PE) against unknown people to investigate purchase of 111 aircraft for Air India at a cost of Rs. 70000 crore; leasing large number of aircraft without proper justifications; and handing over of profit-making routes to foreign private airlines.

All these investigations might take a few months or even years. But the most crucial man who has never been investigated is Praful Patel during whose tenure irreparable damage was done to the Airline. All that may eventually take place in God’s own time but in the meantime one must celebrate the government’s decision.



About the Writer

Pushing 80 I was born in Gwalior in Central India to parents who were educated in Calcutta, now Kolkata. My father did his master's in English in 1916. He was a professor of English in the then only college in Gwalior. After qualifying in the exams for entry in to central civil services I served the government of India for 34 years reaching the very top of the professional cadres of the Indian Postal Service. I also acted as consultant ion behalf of the Universal Postal Union in Afghanistan, Ethiopia, Kenya, Tanzania and Swaziland.
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