Take a look at this story. A quick read, it explains why there is no long line of investors waiting to take the airline private.
- The government does not want Air India to become defunct like Kingfisher Airlines, promoted by liquor baron Vijay Mallya.
- That’s easy. Mr. Mallya is hiding in the UK trying to avoid going back to India to face the courts. Mr. Mallya will never go near an airline again. Nor would any airline welcome him.
- The government does not want anyone working at Air India to lose their job.
- A big problem. We have written about this before. The key item here is summarized in the table.
- Nobody is going to invest in Air India and keep all the hangers-on employed. Nobody. It is because of these thousands of extra people that even the state has decided it can no longer afford to fund the airline.
- Based on the ratios in the table, we surmise that Air India needs to halve its employee rolls.
- Air India has a debt of more than Rs. 52,000 crore (~$8.1Bn) and is surviving on a Rs. 30,000 crore (~$4.7Bn) bailout package extended by the government in 2012.
- This airline seems to burn through money with impunity. Only a central banker could be forced to keep funding this.
- There was talk of the Tata family, which created the airline originally before it was nationalized, taking a look at it. Tata will need to be allowed to cut the waste without limit. Air India can then soar, freed from the burden the state has imposed on it.
- Even if India managed to find a buyer for the airline, can the state keep its interference at bay?
- India’s government needs to get out of the airline business. If it were to behave like other governments, it would quickly realize that air travel is a great source of tax revenue. Air travel has an inelastic demand, meaning the market can sustain taxes without losing momentum.
- Moreover, with Air India in private hands, airfares in India will rise to a reasonable level. That means all India’s airlines benefit. Which means the tax revenue base gets stronger.
- Allowing this should also help India to develop its aviation potential – and further accelerating the nation’s economic growth.
- The Indian government should then deploy some of the tax revenues on building more airport capacity. Which means jobs, lots of jobs. This helps create an upward spiral of economic growth.
Between where we are now and a potential economic nirvana requires some big changes in India’s politics.
Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.