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Union Civil Aviation Minister Hardeep Singh Puri must wait two more months for his tryst with destiny. A successful privatisation of Air India, described in politically correct terms as strategic disinvestment, would make history and perhaps the future too. At least two previous attempts, once during the Vajpayee government and the second during Modi 1.0, fell through in an advanced stage.
This may be the last chance to save the national carrier from oblivion. The Modi government needs to be third time lucky.
The current economic context is daunting. India, like the rest of the world, is facing the brunt of a once-in-a-century pandemic. Among the sectors most devastated by the impact of COVID-19, aviation stands out. Running an airline profitably is a tough business in regular times. It is impossible in a pandemic. Many airlines around the world have filed for bankruptcy; others have received government bailouts.
The government has also been brave in putting Air India right upfront in its effort to privatise a Central Public Sector Enterprise for the first time since 2002-03. It may have helped if a less complex and more profitable enterprise was successfully privatised first, just to give officials more confidence about the process and execution. On the other hand, if the government can crack the toughest test first, the rest ought to be a cakewalk. The stakes are high for a much-needed strategic disinvestment programme across the board.
There are several things the government has got right this time around:
The answer lies in Air India’s assets. It has three primary asset categories:
The main reason for the government’s failure to run the airline profitably lies in its inability to use these assets optimally. All profitable airlines ensure that their aircraft spend maximum time in the air; time on the ground is an unproductive use of an asset. Hence, short turnaround times, and using the same aircraft on multiple routes through the day and night.
Air India’s aircraft spend about one-third of the time in the air that Indigo’s do. The latter is the benchmark in India. Similarly, most private airlines deploy their flight and cabin crew to fly to the limit permissible by regulators. Air India’s more costly human resources have ‘easier’ working hours. Most importantly, Air India is unable to fully utilise its most prized asset: bilateral flying rights (international) and landing and parking slots (domestic and international).
This is for two reasons:
That is the model on which airlines from small European and Asian countries have become global players.
Now, as the process approaches conclusion, the government should be careful to avoid two traps:
Air India’s privatisation is a cutting-ones-losses exercise for the government, and giving the national airline and its stakeholders a renewed hope for survival. It is about saving this national asset. If the sale is successful, it could pave the way for unlocking productivity of several other government-owned assets. It could define the real economic legacy of the Modi government.
(The author is Chief Economist, Vedanta. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
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