Sunday, May 1, 2011

Stop throwing good money after bad…

Despite modernisation of the aircraft fleet, repeated bailouts and multiple rebranding exercises Air India remains an abject failure and is mired in debt. The pilots are on strike again. Here are some stats from an Economic Times article which highlight just how bad the situation is -

  • Daily Earning – Rs. 36 crore, Daily Expenditure – Rs. 62 crore. (These are general figures. Right now, it must be worse because of the strike.) So the airline has to borrow not just to buy aircrafts but for working capital as well.
  • Outstanding unsecured short term working capital loan of Rs 20,763 crore and an annual interest burden of Rs 2,400 crore .
  • The airline is only able to borrow at high rates like 12-14% due to its existing debt burden and dire state of finances.
  • Overdue payment to oil companies - Rs 3,320 crore.

With frequent strikes by Air India staff and strong competition from the private airlines, it is obvious that the company does not have much of a chance of recovering to healthy financial state. Thus the central government will be forced to bailout the company and pay off its debts yet again. Since, Air India has been a recipient of taxpayer funds more than once and still continues to be a loss making PSU, I think it is high time that the government sell off the airline or shut it down and auction off its assets.
It is the time for the
Maharaja to bow out.

What is the use of having a national carrier?

Having a national airline today does nothing to rouse pride as was envisioned when most countries started national airlines. Furthermore, Air India is also proving inadequate when pressed into emergency evacuation tasks since Indian evacuees are generally in numbers too large for any single airline to be able to handle. Even if Air India were to be shut down the government would still be able to engage the help of private airlines for these tasks as it did during the recent evacuation of Indians from Libya <link>. Government will also continue to have the good old Navy and the Airforce at its disposal for use in such evacuations if need be <link>. Having a national carrier does not serve any purpose in the airline industry today since India now already has many flourishing private airlines who I am sure will be able to cater sufficiently to the Indian market even if Air India is shut down.

Political Mismanagement

Once Air India changes hands from the government to a private player it might even be possible to turn it around. Professional management is impossible in the current scenario where the Civil Aviation ministry can influence the company decisions. Unlike professional managers, politicians lack the much needed long term planning that would be necessary to turn around Air India’s fortune. Millions were spent on rechristening ‘Indian Airlines’ as simply ‘Indian’ with a new logo and livery only for it to be merged into Air India less than a couple of years later.

What about the 32000 jobs? 

Yes, if the government sells off the airline while many of them will be retained by the new owners, there are bound to be some people who lose their jobs. It would definitely be a sad day for them but then the other millions of taxpayers should not be expected to continue supporting a lossmaking PSU in perpetuity just so that these few can retain their jobs. Anyway, I am sure it would be possible to get these people good severance pay and all their pending dues which would see them through till they find new jobs. Since the taxpayers have already poured millions into the lossmaking airline, I am sure we can afford just a bit more for the last time to ensure that the laid off workers are not left destitute.

Since crores of rupees poured in by successive governments have yielded no significant results it is now high time that the central government get rid of ‘The Maharaja’. I wont say that the amount saved through selling of Air India would be significant for effecting any major change in the country but continuously throwing money at a consistently lossmaking entity is definitely a stupid move especially when the government has mounting debts of its own. Now that the pilots’ strike has brought the problems of Air India into focus, I hope that the UPA-II Manmohan Singh government that is no longer dependant on Left support manages to find the political will to sell off Air India.


Lastly, I wish Prince William and Kate a very long and happy married life! :)


  1. Hello Sagar,
    I read your post and i found it quite interesting. But I strongly oppose you saying to shut down the airline. Even if it is running in huge losses,this Airline has provided the common people air journey at such low rates as compared to the private airlines which are double the rate of Air India and that to with less facilities than what AI offers.Referring to your point about the Libya evacuation, Air India was sending 3 flights daily compared to 1 flight daily of the private airline. AI has been serving India from years ..and I think that the Maharaja should continue its good work. And yes if we want to recover the losses may be privatisation can do the work or a 50-50% ownership of government and private would also do . All the things listed by me is according to what i think. Your comments are welcomed. thnks for reading

  2. Hi Anonymous!
    Thanks for reading my post! Do consider leaving a signed comment rather than an anonymous one next time.

    You use the term 'common man' to refer to air travellers. However, do consider the much larger pool of taxpayers (which include those who are not rich enough to travel by plane) who subsidised your 'common man's' airfare without any significant benefit to themselves. I would not have objected if AI was making a profit and offering low fares. However, fact remains that they are making huge loses.

    Anyway, your common man will not lose out now because Indian air travel market has grown much larger compared to a couple of decades ago. With competition from new players like Spice Jet, market forces will be enough to ensure that the ticket prices aren't exorbitant. We do not need taxpayer funded AI for that.

    Evacuation situations arise only once in a blu moon. Government can pass legislation making it compulsory for private airlines to help evacuate Indian citizens and as I mentioned earlier, the government does not need AI as it can also use the Navy and the Airforce.

    Lastly, your 50-50 plan might just work provided that bureaucrats have no say in this joint venture. However, considering the way the Bombay airport improved by leaps and bounds after privatisation, I feel that complete privatisation might still be the best option.

    1. ->nice point regarding the common man
      ->passing a resolution making it compulsory for private airlines to help in case of a once-in-a-blue moon evacuation sounds half-baked to me. just because a scenario may take place once in a blue moon doesn't mean we shouldn't have a contingency plan. (An exaggerated version might be saying that we stop allocating so much for a defence budget because full-scale wars occur once in a blue moon and instead have an agreement like the one Costa Rica has with the USA). also reliance by the government on the private sector in key security is not a thought I'm comfortable with.

      A good article overall though


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