From UPSC perspective, the following things are important :
Prelims level : Disinvestment in India
Mains level : Air India disinvestement
Air India has witnessed a calamitous fall in the last four decades.
Fall of Air India
- It operated in a near-monopoly environment, but the pace of descent intensified when it faced competition.
- In the late 1990s, the airline’s service standards declined, and it was referred to as the Disinvestment Commission of India.
- It recommended dilution of government ownership to 40%. The effort did not succeed.
- After 2004, the descent was quick due to a series of reckless decisions, like the acquisition of aircraft in numbers far more than what it could afford or gainfully deploy; and the merger with Indian Airlines.
- The airline was also weak due to doling out of seats by the administration to foreign airlines.
Lack of strategic direction
- Air India’s precarious financial situation was first made public in June 2009 by the then-Chairman Arvind Jadhav.
- The government, instead of tackling the core problem, decided to focus on a financial package.
- The bailout package of over ₹30,000 crores, infused over an eight-year span ending 2021, has not helped Air India evolve into a robust carrier.
- The airline’s survival depends on several factors: the induction of professional management with effective leadership, a sound financial package that does not come with political interference in its day-to-day operations, and unions allowing changes in work conditions and pays packages.
- In 2017, Niti Aayog recommended disinvestment. The government decided to not only retain 24% equity, it also wanted the acquirer to absorb a major chunk of the non-aircraft related debt.
- A proposal for sale has to suit the acquirer as much as the seller was thus overlooked. The offer found no takers.
- The government has put Air India for disinvestment.
- It is driven by the Centre’s anxiety to get rid of the airline. Thus, it can spare itself of the responsibility of further infusion of funds.
- The government ought to ensure that it exits totally, giving freedom to the potential acquirer to transform it into a successful player.
- The cost of further infusion of funds if the exercise fails mustn’t be overlooked.
- As the product still commands a sizeable market share and has an extensive global network that no other Indian carrier can match, the government needs marketing skills.
- All major stakeholders should be convinced that disinvestment is the best way forward.
- Only 1 in 9 passengers are currently patronising Air India. It will be only one in 12 in the next three years as capacity augmentation is undertaken by private airlines.
- This competition cannot simply be matched by funds-starved Air India.
- The government has to make a plan to address the medical-related concerns of serving and retired employees.
The disinvestment exercise this time should be thought of wisely and pursued with determination. Only with it is linked to the prospect of transforming Air India into a robust carrier.