Equity control is imperative
25 Sep 2017 3:59 PM GMT
At first, it was the Congress party and its allies in the government which hurriedly created a new Air India by merging the country's two strong public sector domestic as well as regional and foreign carriers, Indian Airlines and Air-India. The unusual government action, followed by another commercially unviable decision to suddenly acquire a large number of expensive new aircraft for the airline, financially overburdened the new entity with unnecessary large foreign debt. The airline was forced to overbook its fleet, run with excess post-merger manpower and little management autonomy. As if the then civil aviation minister were also the chief executive of the airline, the Air India board and its chairman cum managing director appeared to be only a rubber stamp. The public sector airline was run more like a small family-owned private enterprise. The only attitudinal difference was that neither the minister nor the government cared for the future of the enterprise after their exit.
Surprisingly, the BJP government, which calls itself a nationalist, now wants to get rid of the country's national flag carrier itself as the airline's viability came under pressure because of its heavy debt burden. The government seems to be hellbent to sell off Air India even if it costs the exchequer tens of thousands of crores of rupees under a possible debt waiver provision to attract new buyers. It is prepared to hold road shows abroad to lure buyers to take over India's once 'Maharaja' of the sky. The question is: if Air India can be run profitably by outside investors, why can't it be run by domestic investors, including the government? If a large portion of its debt burden is to be written off as a precondition of Air India's sale, the airline becomes profitable even without a real change in its management control. Yet, if the government does not want to run Air India for whatever reasons, it is free to do so by selling its stake to Indian financial institutions, large Indian corporate trusts and local investors. Such an equity holding pattern in national airlines is common around the world.
Why is the government desperately looking for foreign bidders to sell the strategic national asset despite security implications? Airlines and investors from the Arab world are ready to take over the controlling stake in Air India. They had long tried with European (EU) airlines without success. But, Air India seems to be very special to Arab investors. Already, they are indirectly controlling some of India's private sector domestic and international airlines. An Air-India take-over will provide them majority control of Indian sky for a few million dollars in the form of equity. Given the opportunity, even state-owned Chinese airlines would be keen. India's air traffic is booming. The traffic is growing at around 20 per cent annually. It is among the highest in the world. Lately, Arab and Chinese airlines are having an increasing share of India's international traffic. No one, except a few in the government, seems to really know what exactly the authorities have in their mind about Air India stake sale.
Three Arab airlines, all from the Gulf region, are among the world's richest and best airlines. They are Qatar Airways, Emirates, and Etihad Airlines. In fact, Qatar Airways is ranked as the world's best airline this year by the UK-based Skytrax, a top international aviation rating agency. Other top national flag carriers include Singapore Airlines, ranked No.2, All Nippon Airways of Japan, in 3rd position, Cathay Pacific of Hong Kong, EVA Air of Taipei, Lufthansa of Germany, Garuda of Indonesia, Thai Airways, Hainan Airlines of China, Swiss Air, Qantas of Australia and Air France. All these national carriers are majority controlled by their respective local investors. For instance, Singapore Airlines is majority controlled by the local investment company, Temasek Holdings (Pte) Ltd, having around 55 per cent stake. In the case of Lufthansa, the majority of the company's issued capital is in German hands. Lufthansa is obliged by the Aviation Compliance Documentation Act "to publish its shareholder structure by nationality every three months". This is "in order to prove, as required by bilateral air traffic agreements and EU directives that the Company is under German or European control." Unfortunately, no such law exists in India to protect its civil aviation.
Incidentally, Air India's name does not even feature among the world's top 20 airlines. Through its remote control, the union civil aviation ministry managed India's state-owned airline.
The present government decides even the nature of meal or snacks to be served to the airline's passengers on board. Economy class passengers are served only vegetarian food, now. The government disinvestment in Air India would look as the best option, under the existing circumstances, to make the airline grow to its full potential and compete with other regional and international airlines on even terms. However, the airline must remain under the control of Indian investors. If Indian corporate houses fight shy of bidding for Air India all by themselves, the government would do well to sell a majority of its stocks to domestic public financial institutions. The combined foreign equity participation should not exceed 24 per cent.
There is no harm if the house of Tatas is invited to manage Air India, which they originally promoted and operated before its nationalisation, with a minority stake. For decades, India's top-ranked business house managed and operated the country's largest and most efficient enterprise, Tata Steel, with the support of the LIC of India, then the single largest shareholder of the company boasting some 47 per cent stake. The Tata Sons' holding in the TISCO was below five per cent. Trust India's public institutional investors. They can surely help run Air India profitably and gracefully through a professional management team answerable to the company's board of directors and shareholders. It would be wrong to sell Air India to foreign buyers.
(The views expressed are strictly personal.)
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