Makeover for Maharaja


Air India, the perennially loss-making behemoth with a total debt of Rs 51, 890 crore, is now ready for a make-over. The long-awaited overhaul is now on the horizon. The Union Cabinet has unveiled a fresh round of liberalisation of the foreign direct investment (FDI) policy, allowing foreign airlines to invest up to 49% in Air India. However, the substantial ownership and effective control of the national carrier will remain with Indian nationals. This is a welcome move, fulfilling a long-standing demand for the aviation reform. The Maharaja is finally being liberated from the clutches of government control after pouring hundreds of crores of taxpayers’ money into what is clearly a bottomless pit. Coming ahead of Prime Minister Narendra Modi’s visit to Davos for the World Economic Forum’s annual meeting, the decision will send a clear and unambiguous signal to global investors that India is on the reforms path despite the economic slowdown. Under the existing rules, foreign airlines can invest in Indian companies operating scheduled and non-scheduled air transport services, up to 49% of their paid-up capital. However, this provision was not applicable to Air India. Now that it has been brought under the FDI umbrella and preferential treatment has been done away with, seeking expressions of interest from prospective bidders would be the first step towards privatising the national carrier and achieving a turnaround on the lines of British Airways and Qantas. Earlier, IndiGo and Tata Sons had shown interest in Air India’s operations. There is a need to ensure conducive operating and regulatory environment for the aviation industry to compete effectively.

Air India’s woes are basically financial. It first appeared on the disinvestment list in 2000. At a time when private airlines are catering to more than 85% of the air travel demand in the country, there is no justification for the government to pour in funds to keep the ailing public carrier afloat. These funds could be put to better use by channeling into various social and infrastructure programmes. The government has pumped in more than Rs 40,000 crore so far to keep it afloat. This includes equity support of Rs 24,745 crore since 2011-12 as part of the total bailout package of Rs 30,000 crore over a 10- year period. However, the bailout plan has not solved the problems of the state-owned airline as reflected by the mounting debts. There is a strong case for the sale of non-core assets first to pay off the existing creditors so that the airline becomes an attractive proposition for private buyers. Over decades, the public sector carrier has suffered due to political interference, unprofessional mismanagement and a bureaucratic culture that seeks to perpetuate VIP privileges.