Posts Tagged ‘Air India’

Should Air India be Sold?

Thursday, April 5th, 2018

Should Air India be Sold?

By

Col (Retd) Bhaskar Sarkar VSM

The Government of India has announced that it is ready to sell 76 percent stake in Air India and has called for “Expression of Interest” (EOI). The move has been welcomed by the neo-liberal economist lobby. Only Trina Mool Congress has protested the decision. Congress and the other opposition political parties seem to be sleeping on the issue. This article seeks to lay some facts regarding Air India before my learned readers so that they can decide for themselves if selling Air India is in the best interest of the country.

Some Facts about Air India

Air India is the flag carrier of India. It is owned by Air India Limited, a government-owned enterprise. It flies to 90 destinations including 60 international destinations all over the world. Air India is the largest Indian international carrier with about 18 percent market share. It is the third largest domestic airline in India in terms of passengers carried after Indigo and Jet Airways with a market share of about 14 percent as of July 2017. The airline became the 27th member of Star Alliance on 11 July 2014.

The airline was founded by the legendary Mr. JRD Tata as Tata Airlines in 1932. After World War II, it became a public limited company and was renamed as Air India. It was a profitable air line till 2006. Air India also operates flights to domestic and Asian destinations through its subsidiaries Alliance Air and Air India Express. Until 2007, Air India mainly operated on international long-haul routes while Indian Airlines operated on domestic and international short-haul routes. In 2007, Air India and Indian Airlines were merged under Air India Ltd.

The airline has 140 planes including 43 owned Airbus A320s and 15 owned Boeing 777s that can fly non-stop to the US and Europe. It also has nearly two dozen brand new Boeing 787 Dreamliner planes on favourable sale and lease-back terms. Air India and its subsidiaries have nearly 29,000 employees including about 2,000 pilots, 2000 engineers and 4000 cabin crew. Its $150 million aircraft maintenance and repair unit in Nagpur is the only such in the country. It’s the only airline in India that performs major aircraft checks including for rivals like Jet Airways Ltd. It has 33 hangars, compared with rival Jet Airways’ two. It is the only Indian Airline which has its own training facilities with Boeing 777 and 787 simulators.

Financial State and Assets

By March 2011, Air India had accumulated a debt of Rs 42,600 crores. As per report by the Comptroller and Auditor General of India, the decision to buy 111 new aircraft and the ill-timed merger with Indian Airlines was responsible for the poor financial situation. Neither decision was that of the Airline Management. They were taken by the ministry. The government gave Rs 32,000 crores to Air India in March 2012.

In March 2013, the airline posted its first positive EBITDA or operational surplus after almost six years. Its operating revenue grew 20% since the previous financial year. Air India Limited split its engineering and cargo businesses into two separate subsidiaries, Air India Engineering Services Limited (AIESL) and Air India Transport Services Limited (AITSL) in 2013. For financial year 2014–15, its revenue, operating loss and net loss were Rs 19,800 crores, Rs 2,170 crores and Rs 5,410 crores compared FY 2011–12, which were Rs 14,700 crores, Rs 5,138 crores and Rs 7,550 crores. It will be seen that the Airlines revenues are increasing and losses are decreasing.

Air India has lots of assets other than aircraft. It has four slots at Heath Row Airport, London. It sold one in 2014 for $75 million. Thus this asset is worth $ 300 million or Rs 2,100 crores. It has 8 percent share in Air Mauritius, and share in Orange, SITA travels, Cochin International Airport and Aeuronautical Communications of Thailand. It has two Centaur Hotels in Mumbai and Delhi. It has one of the largest collections of contemporary Indian modern art with paintings by M F Hussein and Anjolie Ela Menon. It has huge land holdings; 32 acres in Central Mumbai, a 30 acres housing colony in New Delhi’s Vasant Vihar, a headquarters valued at Rs 1600 crores and villas and apartments in London, Hong Kong, Tokyo and Mauritious.  (Authority Air India Annual Report 2014-15). Some of these assets can be sold to reduce its debt.

Privatization

The first attempt at privatization was made in 2000-2001 by the BJP but failed. In 2012, a study commissioned by the Corporate Affairs Ministry recommended that Air India should be partly privatized. In 2013, the then-Civil Aviation Minister, Mr. Ajit Singh supported the move. However, the opposition led by the BJP and the CPI(M) opposed the move.

On 27 May 2017, finance minister Mr. Arun Jaitley said Air India, with a mere 14 percent market share, had debt of Rs50,000 crore. To run Air India Indian tax payers have invested Rs 50,000 crore which can be used for other purposes. So he has put a perfectly well run government enterprise for sale to make up for the present governments inefficient tax collection and fiscal management.

The decision to allow 76 percent foreign stake in it can lead to large scale retrenchment of its 29,000 employees. The fear of job losses has been one of the major reasons for various Air India unions to be opposed to the divestment plan. Even Centre of Indian Trade Unions (CITU) and RSS-affiliated Swadeshi Jagaran Manch have opposed the move.

Is Air India’s Debt Abnormal?

Air India’s accumulated debt that stands at about Rs 50,000 crores. Let us examine the debt record of our leading private sector business houses.

India’s largest debtor is Mukesh Ambani’s Reliance Industries (RIL), has a total debt of Rs 1,87,079 crore. It also has the best record of timely paying its interest. So banks are happy to offer RIL loans.

The Tata Group’s consolidated debt was $10.7 billion or about Rs 70,000 crores on September 30, 2015. They are not amongst defaulters.

The Anil Ambani led Reliance Group has a debt of Rs 1,21,000 crores and is a major defaulter. Reliance Communications (R Com), its flagship firm, has a debt of Rs 40,000 crore. It has posted a loss every year since FY 14-15. The company is valued at Rs 13,440 crore, less than a third of its total debt. Reliance Infrastructure (R-Infra) has Rs 25,000 crore of debt. Its market capitalisation is Rs 14,476 crore and is lower than its debt. Reliance Capital has debt of Rs 24,000 crore and in default. The group’s other firms like Reliance Infrastructure and Reliance Defence don’t earn enough to service the interest payment. The Essar group has gross debt of Rs 1,01,461 crore and in default. Its 10mtpa steel business that currently has a debt of Rs 40,000 crore is under the hammer. The Adani Group’s debt stands at Rs. 72,000 crore. Global lenders have backed out from funding the $10-billion coal mine development project in Australia. The Jaypee group’s debt is over Rs 75,000 crore. The group has defaulted on payment obligations worth $350 million and is on the verge of going bankrupt. The GMR group debt was at 47,738 crores at the end of FY 2014-15. The Lanco group has debts of Rs 47,102 crore. The Videocon group has a net debt of Rs 39,600 crore and in default. The GVK group has a debt of Rs 34,000 crore. Jindal Steel and Power Limited has a debts of Rs 46,000 crore. It will be seen that our great Private Sector is making merry with bank funds. Most do not have assets to cover their debts. So what is the problem if Air India has a Rs 50,000 crore debt? It is paying its creditors and cannot run away as Vijay Malaya did or Nirav Modi and thousands of others have done. Money in the banks in India whether equity, deposits or debt belongs mostly to Indians. If Private Sector can use this money with impunity for running their businesses and luxuries, why can public sector companies not do the same? What is the need for selling them?

Rs 11.5 lakh crores of Non Performing Assets (NPAs) are owed by the Private Sector companies to Indian banks. Rs 4.70 lakh crore worth of NPAs were due to loans extended to industry. The debt of Air India is normal for a company of its size. Why should a Public Sector Company be denied funds raised from the Indian public?

Conclusion

Vijay Mallaya loots banks of about Rs 7000 crores and makes merry in London. Diamond dealer Nirav Modi loots a bank of about Rs 12,000 crores and takes off to unknown location ruining thousands of employees and hundreds of franchise and investors.  Our government is not even blinking an eye. Every NPA of the public sector bank is tax payer’s money or money deposited or invested by the ordinary Indian public. Air India cannot run away abroad with its 140 aircraft and thousands of crores of immovable assets. Why target Air India? Why can the government not nationalize all defaulting industries without payment and sell them off and recover the money?

The flip flop by the BJP regarding Air India privatization is mysterious. It wanted it in 2000-01 but opposed it in 2013. It has again initiated it. The Government did not mind spending about Rs 72,000 crores on demonetization (Rs 36,000 crores on printing new notes and Rs 36,000 crores on reduced RBI dividend). Is the government out of money to spend and is desperately selling whatever it can? Or is the Government planning to gift it to a consortium of crony capitalists like Adani Group of Gujarat in return for generous political funding for the 2019 General Elections? Whatever be the reason behind the move, Air India belongs to the people of India and no government has the right to gift it away to a crony capitalist who will borrow from the same banks to finance the purchase and not return the money.

I rest my case. Oh Readers! Please decide whether Air India should be sold. If the answer is no, please do all you can to stop the sale.

Lastly, I would like to express my gratitude to Mrs. Mamta Bannerjee and Trina Mool Congress for opposing the move. I also request Mr. Rahul Gandhi and all other opposition leaders to oppose the proposal in and outside the Parliament. If Indian railways can have budgetary support, if state transport can have budgetary support, if “Gaushalas” for unproductive cows can have budgetary support, when BJP state governments can spend thousands of crores in preparing Unique Identity Cards for cows, bullocks and bulls, why should Air India not get budgetary support? Air India provides subsidized air travel to people of the North East, Andaman Nicobar and Lakhsha Deep Islands. It is available to the Indian Government for emergencies like evacuation of Indians from Kuwait and moving troops from one sector to another in time of war.

Air India is a national asset. It should be freed from political and bureaucratic interference and handed over to competent persons like Capt C D Gopinath. Then it will shine like the other “Navaratnas”.