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Other kings to rule Maharaja

 Editorial |  2017-07-20 15:57:22.0  |  New Delhi

Other kings to rule Maharaja

With the Centre giving its 'in-principle' nod to divest stakes in the much-publicised wholly owned government airline Air India on June 28, the government appears willing to shed a substantial portion of its stake and hand over the management of the ailing airline to the private sector. The Cabinet had also endorsed a tactical disinvestment in five of Air India's subsidiaries. It may be noted that the government think-tank NITI Aayog's recommendation on strategic disinvestment of Central public sector units, including Air India, was the immediate reason for its stake sale. In its report earlier this year, NITI Aayog had recommended an outright sale of Air India. The proposal was then sent for consideration of a core group of secretaries on disinvestment, chaired by the Cabinet Secretary. The recommendations given by the Cabinet Secretary-led group were forwarded to the Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, which gave its 'in-principle' nod for the national carrier's strategic sale. Air India's privatisation was first proposed in 2000, when the previous National Democratic Alliance (NDA) government decided to sell 51 per cent of the equity of the erstwhile domestic airline Indian Airlines, with 26 per cent stake to a strategic partner. It also decided to allow disinvestment of 60 per cent of Air India, which was running international operations, with 26 per cent foreign entity stake. However, the proposal was dumped after the then Civil Aviation Minister Sharad Yadav out rightly dismissed it. In recent times, news about disinvestment of Air India has been occupying major space in the national media. Notwithstanding improving the performance of the airline, disinvestment is perhaps inevitable in view of the huge debt the airline is saddled with. The operating profit in 2015-16 is evidence of the fact that the airline is able to stand on its feet, even after discounting the extremely heavy debt servicing charges; debt that accumulated for a variety of reasons, including the flawed decision of merger with Indian Airlines which also left many scars in its wake. The government's efforts to turn around the finances of Air India seem to have failed with the national carrier's eroding market share, continuous losses and a mountain of debts. Surprisingly, right from the first day of merging the erstwhile Indian Airlines (domestic operations) with Air India (international operations) in 2007, this Maharaja brand has not registered any profit until date. However, the primary reason for Air India's disinvestment was the government's inability to cope with its debt of Rs 52,000 crore. Around Rs 22,000 crore of the total debt accounts for aircraft acquisition loan and the rest is related to debt for meeting its daily and operational expenses. The whopping debt that the present Maharaja management holds at this moment is like tackling an 'insuperable' demon. The government, early this year, had made clear that around Rs 50,000 crore could be invested in social welfare sectors instead of financing Air India's debt. The government has already invested Rs 23,993 crore out of Rs 30,231 crore slated to be pumped as equity into Air India till 2020-21, as part of the airline's turnaround plan approved by the previous government. Air India's market share has also eroded rapidly over the years due to competition from private players — from 19.4 per cent in 2013 to around 13.3 per cent in May 2017 — in the domestic sector, which made it nasty to continue running its operations. The good news is that within hours of the government announcing its plan to divest its stake in Air India, India's largest low-cost airline IndiGo expressed formal interest to the Civil Aviation Ministry in taking over the international operations of Air India. However, it would take some time for Air India's disinvestment to take off. It has formed a Group of Ministers, headed by Finance Minister Arun Jaitley, to decide the modalities of disinvestment and come back with a detailed proposal. The group has to take a call on the substantiality of stake sale, its 'incorrigible' debt, whether to allow foreign investors to bid for the national carrier or not, if Air India's operations would be split into domestic and international before sell-off and whether Air India's subsidiaries would be divested simultaneously or separately. In any case, Air India should hopefully remain the 'Brand Maharaja' with all its inherent strengths even with a change in the shades of its ownership. With many constraints removed, perhaps the organisation would emerge stronger and realise the true potential of its men and machines. After all, it still represents the 'spirit' of India.

The recommendations given by the Cabinet Secretary-led group were forwarded to the Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, which gave its 'in-principle' nod for the national carrier's strategic sale. Air India's privatisation was first proposed in 2000, when the previous National Democratic Alliance (NDA) government decided to sell 51 per cent of the equity of the erstwhile domestic airline Indian Airlines, with 26 per cent stake to a strategic partner. It also decided to allow disinvestment of 60 per cent of Air India, which was running international operations, with 26 per cent foreign entity stake. However, the proposal was dumped after the then Civil Aviation Minister Sharad Yadav out rightly dismissed it. In recent times, news about disinvestment of Air India has been occupying major space in the national media. Notwithstanding improving the performance of the airline, disinvestment is perhaps inevitable in view of the huge debt the airline is saddled with. The operating profit in 2015-16 is evidence of the fact that the airline is able to stand on its feet, even after discounting the extremely heavy debt servicing charges; debt that accumulated for a variety of reasons, including the flawed decision of merger with Indian Airlines which also left many scars in its wake. The government's efforts to turn around the finances of Air India seem to have failed with the national carrier's eroding market share, continuous losses and a mountain of debts. Surprisingly, right from the first day of merging the erstwhile Indian Airlines (domestic operations) with Air India (international operations) in 2007, this Maharaja brand has not registered any profit until date. However, the primary reason for Air India's disinvestment was the government's inability to cope with its debt of Rs 52,000 crore. Around Rs 22,000 crore of the total debt accounts for aircraft acquisition loan and the rest is related to debt for meeting its daily and operational expenses. The whopping debt that the present Maharaja management holds at this moment is like tackling an 'insuperable' demon. The government, early this year, had made clear that around Rs 50,000 crore could be invested in social welfare sectors instead of financing Air India's debt. The government has already invested Rs 23,993 crore out of Rs 30,231 crore slated to be pumped as equity into Air India till 2020-21, as part of the airline's turnaround plan approved by the previous government. Air India's market share has also eroded rapidly over the years due to competition from private players — from 19.4 per cent in 2013 to around 13.3 per cent in May 2017 — in the domestic sector, which made it nasty to continue running its operations. The good news is that within hours of the government announcing its plan to divest its stake in Air India, India's largest low-cost airline IndiGo expressed formal interest to the Civil Aviation Ministry in taking over the international operations of Air India. However, it would take some time for Air India's disinvestment to take off. It has formed a Group of Ministers, headed by Finance Minister Arun Jaitley, to decide the modalities of disinvestment and come back with a detailed proposal. The group has to take a call on the substantiality of stake sale, its 'incorrigible' debt, whether to allow foreign investors to bid for the national carrier or not, if Air India's operations would be split into domestic and international before sell-off and whether Air India's subsidiaries would be divested simultaneously or separately. In any case, Air India should hopefully remain the 'Brand Maharaja' with all its inherent strengths even with a change in the shades of its ownership. With many constraints removed, perhaps the organisation would emerge stronger and realise the true potential of its men and machines. After all, it still represents the 'spirit' of India.

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