Dr Bharat Jhunjhunwala
Our National Carrier Air India has shown remarkable improvement in its financial fortunes lately. It has made an operating profit after many years. This welcome development appears to be due to fortuitous circumstance of a committed official taking reins of the Company. Such fortuitous circumstances are rarely sustainable, however. Therefore, the Government must move speedily to privatize the airline while the going is good. We should not forget the experience of VSNL. The market was willing to pay about Rs 1300-a-share for the Company. The offer was rejected by the Government for being too low. About two years later, the shares had to be sold for about Rs 900. Therefore, it is better to privatize the Company while the going is good instead of pitching for a permanent revival of Air India within the Government fold.
The Government has invested Rs 16k crores in the Company in the last four years yet there is no end to its losses. This amount is equal to a tax of Rs 500 per family. This money has been extracted from every family to keep Air India afloat.
One reason of the losses is overcrowding. Large number of private airlines have entered the market but there is not enough demand for their services. The most inefficient among them have to close down per force. This is the natural process of the market which has led to the closure of Kingfisher. The impending entry of Air Asia, however, indicates that the market is not truly overcrowded.
The immediate cause of the plight of Air India appears to be the ill-planned merger of Indian Airlines and Air India in 2007. The two companies had different characters like tea and coconut water. Indian airlines was operating on short routes with smaller aircraft. Air India was operating on longer routes with bigger aircraft. Pay packets of pilots was higher in Air India. This became a problem after the merger. Pilots coming from Indian Airlines sought parity with those coming from Air India. This was not sorted out speedily leading to much dissatisfaction. Moreover, the combined entity has become unwieldy to manage.
These are superficial reasons of Air India’s decline in my assessment. The real reason for the losses is the intrinsic nature of government and its employees. They are loath to work. The banks were nationalized in the sixties. People have told me that the culture changed overnight. Till yesterday the bank workers were courteous and working hard. They became rude and easygoing on the very next day of nationalization. They knew that it is no longer necessary to work and its is virtually impossible for them to be dismissed. This government culture is the fundamental problem of Air India. It is told that flights take off when the pilots wake up and reach the airport. The flight follows the waking time of the pilot; not the other way around. Delay of one flight in the morning sets in motion delays of all the connected flights. Major decisions to be taken by Air India management have to be vetted by the Secretary to the Government. Reportedly the decision to phase out old dilapidated aircraft and to induct new ones was delayed much because the Ministry could not make up its mind. Such delays can be devastating for a business. The utilization of aircraft is also less. A report by CAPA Center for Aviation says that only 100 out of 127 aircraft were being used by Air India. The daily flight time was also less compared with Industry average. These problems are rooted in the very nature of Government servants. It appears the that the present Managing Director has sorted out some of these problems leading to the turnaround. But I do not think this will help much. A cancer patient may go for a walk when the weather is nice. That does not mean that he has been cured. Similar is the situation of Air India. The induction of a determined official as Managing Director has provided a short golden window which has enabled Air India to show some improvement.
The National Airlines of other countries are suffering a similar fate. According to one report, Air France of France, Alitalia of Italy, Sabena of Belgium, Olympic of Greece and Iberia of Spain have all been bailed out by their governments to keep them afloat. JAL of Japan had gone bankrupt in 2009. It has been resurrected in a lean and slim shape after a big reduction in manpower. State-owned national carriers simply cannot face the intense global competition in the sector.
Why are other Public Sector Undertakings successful then? My take is that these are mainly monopolies or they get indirect financial assistance from the government. I was living in Delhi. I moved to Uttarakhand. The only bank near my home was that of State Bank. Per force I had to shift my account to State Bank in Delhi so that transfer of monies would be smooth and easy. State Bank has established network of branches across the country with government support earlier. Now it is reaping the benefits of that investment and showing profit in its balance sheet.
Vajpayee Government had understood this. It had embarked on a policy of privatization under the leadership of Arun Shourie. Companies like BALCO were privatized. Management of these companies was handed over to private businessmen and government control was extinguished. The government was made small. The UPA Government has turned that policy on its head. He has embarked on a policy of disinvestment instead of privatization. A portion of the shares of the Company are sold to investors. Control remains with the Ministers and Secretaries. Additionally they get to spend the monies received from disinvestment. Objective of reforms was to make the government lean and thin.
The new government to be formed after the General Elections should abandon UPA’s wholly perverse policy. Air India should be privatized along with other Public Sector Undertakings. The money received should be used to establish new PSUs in pioneer areas. Indian space and defense scientists have developed considerable ability in satellite delivery and imagery and communications. Agencies like Indian Space Research Organization lack the commercial bent of mind to sell these services to buyers across the world. A PSU must be started to sell these services. Genetic and biotechnological research is another area. We have scientific expertise. But one has to make a large number of experiments. The critical mass of investment required is very large and risk great. Indian private sector is not rising to the occasion. A PSU should be established to develop and commercialize these technologies. Let us set up a Monsanto in the public sector. We must not tax the people to keep Air India afloat.
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