Govt must give up confusion and privatise Air India

Air India drags the entire sector down

Recently, Civil Aviation Minister Ashok Gajapathi Raju, when asked about the future of Air India, said the Centre wanted the airline “to survive”, but that it did not matter “who runs it”. He argued that taxpayer money could not sustain the airline forever. These statements, taken together, are both welcome and disheartening. On the one hand, they open the door to a possible future in which the state-controlled airline is perhaps operated, or part-owned, by the private sector. On the other hand, they betray a lack of confidence in the market and inadequate awareness of how the aviation sector, in particular, works. If Air India is to survive then that will have to be a decision made by passenger choice and market principles — or else it will continue to need taxpayer financing forever. 

If the government believes that taxpayers cannot pay for Air India forever, then it does not appear to be acting on that basis. For one, contradictory reports are emerging over whether the airline intends to purchase or lease additional Dreamliner planes. For another, according to some reports, it is being proposed that public sector banks will be induced to become “strategic investors” in Air India, following which the airline will be listed. This confusion is worrisome. The idea that the already stressed public sector banks could be asked to sustain a white elephant of an airline is deeply problematic. Moreover, it is unclear how an airline with so much debt can ever be listed on the equity markets.

The basic problem continues to be the fact that the government wants to hold on to Air India and believes that its survival is somehow important to the national interest. Very simply, this is not the case. However important it may have been in the past and whatever mistakes may have been made in its management over the decades, Air India is simply no longer necessary for a well-functioning aviation sector. In fact, it drags the entire sector down. Having a player that can draw on the Consolidated Fund of India to cover up its errors, inefficiencies and mispricing means that all other airlines are being penalised and the market is being distorted. It is difficult to avoid the conclusion that bureaucrats and politicians are keeping Air India running precisely because an in-house airline suits them, and not because it serves any great purpose for the nation as a whole or taxpayers in particular.

No solution short of privatisation, even if that involves shutting down some operations, is going to be workable. Private operation of the airline might sound tempting, but as long as there is the option of taxpayer money being available, there is no reason why a private operator of Air India will have the incentive to run the airline profitably. Nor is the listing of the airline going to provide market discipline, especially if state-controlled debt-holders are transformed into the principal shareholders. It was recently revealed that a plan to privatise the airline was almost finalised before being shot down. This government should revisit that idea, if, that is, it genuinely believes taxpayers should not be on call forever.