Daily Insight: Monday 27 May 2019: Air India for sale again

News Fresh after the elections the government is once again trying to sell Air India. The last attempt did not attract even one bidder. It appears the goal is to try attract a bid for $1Bn for the airline. This is a very big number considering that Air India generates losses year after year. Analysis Air India is like every other state owned airline - it is a sinecure for political friends and supporters. There are exceptions, but these are few. States cannot run a business in a competitive environment without causing these competitors significant stress. The Indian airline market is no different. Air fares are too low for the good of the industry. One only has to look at the number of Indian airlines that have come and gone over the past decade. The most recent collapse of Jet Airways is a case in point. The loss of the company is one thing. But the loss of skilled jobs in India is damaging to the economy. Insight Air India is an old company. having started in 1932 by the legendary Tata family. The company was nationalized in 1953. There have been attempts to privatize the airline since 2001. In 2006 Air India was merged with Indian Airlines and the combined company has made steep losses since then. In 2013, Civil Aviation Minister Ajit Singh stated privatization was the key to the airline's survival. However, being a political football, the opposition led by the BJP and the CPI(M) protested. So the Indian government delayed an equity infusion of $4.3 Billion that was to be granted to the airline over an period of eight years. In 2013 Air India also raised cash by selling and leasing back its new Boeing 787s. By March 2013, the airline posted its first positive EBITDA after almost six years and 20% growth in its operating revenue since the previous financial year. 2013 was a busy year: Air India Limited split its engineering and cargo businesses into separate subsidiaries, Air India Engineering Services Limited and Air India Transport Services Limited. In December 2013, the airline appointed a pilot SPS Puri as its head of operations. The appointment was criticized by the Air India pilots union as Puri allegedly has multiple violations to his name. On 28 June 2017 the Government again announced the privatization of Air India. A committee has been set up to start the process. But the process has gone nowhere. Because of political interference, potential buyers remained leery. Absent a clear mandate to acquire the company without its debt and a free hand to execute massive layoffs, no investor will step up. India is a fast growing air traffic market, second only to China in potential. To underscore ths consider that more people travel by rail in India in one day than travel by air in a year. The upside is tremendous. But Air India comes with too much baggage. The state has be a lot more transparent and aggressive to offset the manifest risks for outside investors.

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