Wrong flight path: Govt's latest proposals for Air India won't help at all

The government is reportedly evaluating a proposal to induct banks as strategic investors in the loss-making Air India. This will require a consortium of 19 banks, led by State Bank of India, to convert its working capital debt of Rs 28,000 crore into equity. Subsequently, the airline could be listed on the stock market, though there is no proposal to privatise it. The revival plan also includes hiring professionals with a proven track record of running an airline. This is yet another plan in the works to breathe new life into Air India. In 2012, the government had approved pumping over Rs 30,000 crore into the airline to revive it, and over three-fourths of the money has already been invested. Still the airline is awash in red, which is all the more worrisome because the last couple of years have been very good for the civil aviation sector.

It is true that of late Air India seems to be making some moves to bring in operational efficiency. It is in talks with three consultancies, including McKinsey, to rationalise costs and plan its network better. With privatisation out of the way, it is possible that its employees’ union may agree to the restructuring plans. Yet, this latest plan to reboot the airline may end up as a hobble. For one, the key triggers for the turnaround in the aviation sector were the low price of jet fuel and a record growth in traffic numbers. Taking advantage of this, most private airlines recorded buoyant numbers. But, Air India reported a loss of over Rs 3,500 crore in 2015-16, although it must be added that it was way below the loss of over Rs 5,800 crore in the previous year. And with jet fuel prices starting to move north, a recovery by Air India looks all the more improbable.

The key proposal is to convert almost three-fifths of Air India’s total debt, which is over Rs 50,000 crore, into equity. This is expected to provide some financial relief to the airline. But, the question is: Will the banks be prepared to take this gamble, especially when they are straddled with huge bad debts? In case the airline does not turn around, they will be stuck with worthless paper. Moreover, to ensure an operational turnaround, the government wants professionals to run the airline. This is not the first time the government has talked of such an exercise. In the past, it has inducted private businessmen on Air India’s board, but that did not yield the desired results. The truth is, no professional will join the airline unless he is promised full functional autonomy. This, in turn, will require the ministry of civil aviation, which runs the airline, to let go of its control. But, if there is one thing we know about the government, it is that bureaucrats do not like to give up control easily. 

Air India is paying the price of an injudicious fleet expansion many years ago and a botched merger with Indian Airlines even as nimble rivals stole business away from it. The latest plan is only likely to make a bad situation worse and the government will be well advised not to force its decision on the banks.