Treat to Maharajah Air India
January 22, 2021
Any hurry by the government to use Air India as a tool to manage fiscal deficit will be disastrous to the country and we will have to live without a national carrier for a long-long time. — Alok Singh
Air India adopted Maharajah as its mascot during the year 1946. The airline has a superb timeline. It started its journey in the year 1932 under the leadership of J R D Tata and was named Tata Airlines before it became a public limited company and renamed as Air India after the Second World War. The other endeavour to retransmit Air India- the public limited company to a private company started during the year 2000. For the last twenty years whenever the government of India has to manage its fiscal deficit the radar of ideas points to privatize the Maharajah and it keeps popping out year after year because of one reason or the other.
Privatization has many variants. Privatizing a public sector unit has many models. The public-private partnership is one such model among many variants. Again, the public-private partnership itself has many variants- which can be standardized or can be customized. The Indian aviation sector has few examples of public-private partnerships. These are related to airport infrastructure. The Airports Authority of India and private companies GMR and GVK has transformed airports in Delhi, Mumbai, Bengaluru, and Hyderabad. The infrastructure sector is a good area to illustrate variants of public-private partnership. The public-private partnership model which has been implemented in the infrastructure, sector are bid-build, design-bid-build, design-build, design-build-finance, design-build-finance-maintain, design-build-finance-operate, design-build-finance-maintain-operate, build-finance, build-operate-transfer, build-operate-finance-transfer, design-build-operate- finance-transfer, build-lease-transfer, build-own-operate, build-own-operate-transfer, operations-maintenance, operations standalone, maintenance standalone, and any other customized property by creating a special purpose vehicle.
The contracts and auction process has also a role in the public-private partnership models. The contracts of public-private partnerships are sometimes short-term, sometimes midterm, and sometimes long-term. A lot of combinations and permutations of public-private partnerships, contracts, and auctions have a role to play in this business assuming that the game is fair and transparent. Fairness means the medicine has been given for the correctly diagnosed disease. The disease needs to be treated, the untreatable part which is spreading poison to the healthy part has to be amputated and not the whole body.
The government can also raise assured money through the listing of Air India in the domestic stock exchanges. The success, failure, fear, hopes, and revival of Jet Airways is a classic case study in the airline’s history. The takeoff of Jet Airways is still a work in progress. But there were times in the stock market during the pandemic when this Indian airline company was gaining price and no other airline company was matching its performance in the stock market in whichever exchange be it listed.
During the current pandemic when the travel and tourism industry has and is still facing the maximum amount of uncertainty among all the sectors, the Indian aviation sector has behaved differently. Multiple new airports have been made operational for passenger traffic during the pandemic time itself, for example- Darbhanga airport in Bihar and soon to be operational Deoghar airport in Jharkhand. Many corporate leaders tried to create a perception that the airline business is a money-burning-losing business and with a maximum amount of uncertainty regarding its sustainability. The risk-reward ratio is unfavourable in the sector. Despite that, the former employees of Jet Airways consistently believed that their airline will fly and they even attempted to create a consortium to make it operational again. The front-end staffs of the airline’s operations are very committed and know the business of operations better than the higher management. The higher level management makes strategic mistakes and the lower level management who runs the operations are labelled as cost centre. The level of hope that was demonstrated by the Jet Airways people to run Jet airways is equally applicable to the people of Air India.
The advocates of the privatization of Air India can argue on the foundations of the revival of Jet Airways that it is the best time to privatize Air India and the success of Jet Airways can be replicated. The counter-argument can be that the pandemic time is the worst time for the travel and tourism industry and hence bad time for the aviation sector, so the privatization at this time won’t maximize the return on sales of assets or services. The rational argument is that the employees of Air India be asked to put their money, change the incentive criteria, create and avail the stock options, and let the new model work for a few years, plug the loopholes of wastage, and change the process and product to attain better profitability.
India’s aviation industry has a long path to travel and most importantly it has a lot of potential for growth in the upcoming future. The rising wealth as the number of the middle class and the higher cost of land acquisition fit the public as well as the government to let the aviation sector bloom to its full potential. The tough, costly, and time-consuming land acquisition is against the expansion of railways and roadways networks but it relatively favours the expansion of airways and waterways networks. Aviation as a sector is a good sector to do business; it’s the emerging sector and not the outdated sector. It’s the sector that is going to follow the business principle of replicable, scalable, and sustainable in the Indian business environment.
Air India Employees Consortium and Tata Sons are the two entities whose expression of interest needs to be watched. The government should not be in a hurry to attain the disinvestment process during the current financial year at any cost. The goal should be to optimize the asset, create the best business practices, and look for a most suitable public-partnership model, rather than just another tool to bridge the fiscal deficit. The interest of the country should come first, followed by the interests of Air India, then the interests of the employees of Air India, and lastly the interest of the investors. The privileges offered to top-level government officials and politicians by Air India should not be anything more than what other private airline companies offer to their top-level management or politicians.
The Maharajah Air India has to live king size and maintain its legacy and identity of being the Indian airline. The nascent revival story of Jet Airways can’t be forgotten while dealing with Air India. The government should move slowly but steadily in this mission Air India. The Air India employees and the general public of India are prudent enough to sustain the Maharajah. Any hurry by the government to use Air India as a tool to manage fiscal deficit will be disastrous to the country and we will have to live without a national carrier for a long-long time. It’s not the time to repeat the nationalization-privatization game. Whatever is important for national interest has to be owned by the nation. The discount can be made whether it’s owned by the government or is owned by individuals of the nation through the stock exchange. The Maharajah needs with all due respect- legacies treat.
Alok Singh is fellow of Indian Institute of Management Indore and currently is faculty of general management at NICMAR.