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What if NaMo was India’s PM in 1947?

By Girish Menon

Pervez Hoodbhoy, one of few famed Pakistan scientists, asked whether India could have launched Chandrayaan2 if Modi was India’s Prime Minister in 1947? I thought this was an extremely important question in an era when all things Nehruvian and Indirayian are being rubbished without any concern for facts.

Meghnad Desai, an economist of renown, in his latest piece in the Indian Express provides a stark example. Desai tries to create the impression that it was the private sector that was responsible for India’s lead in the space programme. Desai states that despite Nehru’s inclinations towards the public sector he listened to Sarabhai, who came from an industrialist family and had a market orientation, and this resulted in the successful space programme.

What Desai ignores is that ISRO has always been a public sector organisation. It was not started by the Sarabhai family and subsequently nationalised by a socialist Nehru or Indira.

A recent edition of the Guardian (How the state runs business in China) talked about how members of China’s Communist Party are involved in the management of all large companies operating in China. This includes western multinationals as well. And China is poised to be the world’s largest economy with its firms ready to compete with global corporates. Free market ideologues deliberately ignore such facts.

In India’s case, the spokespersons of the ruling corporatocracy fail to admit that the industrialists post independence viz. Tatas and Birlas did not have the capital nor the knowhow to launch the industrial revolution and it was left to Nehru to use tax payer money to launch the education and scientific revolution whose benefits India is now reaping.

The case I am making is that there are good public sector organisations as well as bad ones. The bad ones could be shut down due to their continuous reliance on government subsidies. But as the so far botched privatisation of Air-India has shown, India’s private sector enthusiasts have not shown any enthusiasm to take over and turn around such firms. Instead, they would like instant money spinners or public sector firms which can be cannibalised for instant profit.

Even in the case of bad public sector firms, if a systematic analysis of their sickness is carried out many will reveal that their problems often are not within the firm but lie outside with their political masters. In Air-India’s case the decisions by Praful Patel to favour Jet Airways and to destroy the public sector firm have led to its current state.

On the other hand, it is worthwhile to study the case of Jet Airways the private sector darling of free market India. It is now bankrupt despite all the favours given to it including flying rights and free aviation fuel.

There are so many instances of India’s preferred industrialists being given favourable loans, government lands and other subsidies and yet not contributing to reducing the burgeoning unemployment question. All of this is swept under the carpet as the current administration prepares to make a distress sale of the public sector.

India’s private sector has not provided global leadership in any area. While we await to see what Anil Ambani’s defence company will do, Indians must rejoice Chandrayaan2 while not forgetting that it is a public sector firm that is a world leader in rockets and satellite technology.

The Air-India privatisation: Privatisation is not reform

Kannan Kasturi in The Economic and Political Weekly

The decision to privatise Air India comes at a time when the government’s “reform” credentials are being questioned by big business. All information publicly available points to a continuing improvement in the performance of the airlines. Between 2011–12 and 2015–16, the last year for which official financial results are available, the airline showed a steady improvement in terms of its operational profit/loss as well as its passenger load factor. The corporate business press is lauding the government’s privatisation decision, hailing it as the resumption of “reforms” which has come to mean more disinvestment and privatisation. It is hard to understand how mismanaging public assets and then selling them is “reform.”

The government appears to be on the fast track to privatise Air India (AI), the country’s flag carrier airline with the union cabinet giving its approval soon after a recommendation from the Niti Aayog. The chief executive officer (CEO) of the NITI Aayog revealed that it took only 15 days to come up with the report recommending total privatisation of the carrier. The Aayog did not see any need to consult the stakeholders of AI—employees, management or even the Ministry of Civil Aviation (MCA).

The last time a plan for privatisation of India’s public sector airlines had been mooted—only to be quickly abandoned—was during the tenure of the National Democratic Alliance (NDA) government of 2000–04 (PAC 2014: 154). The years following this were extremely traumatic ones for both the Indian Airlines and AI and after their merger in 2007, also for the merged entity, with a rapid deterioration of its finances.

In April 2012, the government signed a 10-year restructuring plan with the AI. Since then, as required by the plan, it has been continuously monitoring the performance of the airline. Repeated statements by the MCA in Parliament over the years, the last as recently as on 9 March, have testified that the government is largely satisfied that the AI is progressing as per the turnaround plan (MCA 2017a). Against this backdrop, the Minister of Finance Arun Jaitley’s highlighting of AI’s debt and market share as reasons to proceed with its privatisation, is to say the least, curious.

So what caused AI’s finances to deteriorate rapidly till 2012?

The Making of a Crisis

AI and Indian Airlines had been running profitably till 2005–06. However, their future had already been compromised by then.

During the period 1998–2004, no new planes were ordered for AI or Indian Airlines. This was at a time when competition was increasing from private airlines which were rapidly expanding their fleet. The NDA government was keen on privatising Indian Airlines and did not take decisions on the proposals for fleet expansion by Indian Airlines and AI (PAC 2014: 141, 154).

Fleet expansion proposals were finally approved by the government (now of the United Progressive Alliance—UPA) in 2005–06. The orders for new aircraft would have been large ones considering that they came after a long interval. However, even here, the government interfered with the erstwhile AI to its detriment. An AI (pre-merger) board approved proposal for 28 aircraft in January 2004 which was revised to 68 aircraft by November 2004! The total estimated cost of the aircraft on order by the two airlines was over ₹41,000 crore and the only equity infusion planned was ₹325 crore for Indian Airlines. The acquisition was to be funded by debt to be repaid through revenue generation (CAG 2011: viii).

With the two airlines in a precarious situation, the government in its wisdom carried out their merger in 2007 at one stroke. The unions representing airline workers and staff were not consulted. From all accounts, it appears that it was an ill-thought-out act for it would have been difficult to find synergy in the two organisations. The two airlines flew different types of planes and hence the skills of pilots and engineers were different. They had different ticketing systems, and a different organisational culture. The merger imposed huge immediate financial costs and severely affected the morale of the employees.

Between 2007–08 and 2012, AI chalked up increasing losses each year. This along with loans taken to pay for the 111 planes on order added up to a huge debt. By April 2012, when the government finally signed on a turnaround plan for AI, the annual operational loss of the airline had increased to around ₹5,000 crore and its accumulated debt had reached nearly ₹43,500 crore. It was then operating on a capital base of ₹3,345 crore (AI 2012).

Even while the AI was struggling with aircraft shortage, the government went ahead and increased bilateral entitlements (including interior points of call in India) with West Asian countries much beyond the dictates of mutual traffic. At that time, the AI was not even able to utilise its existing quota on what were its most profitable routes. The West Asian carriers used sixth freedom traffic rights (the right to fly from one foreign country to another foreign country after stopping in one’s own country) to transport people from India to Europe and the United States (US) via their West Asian hubs, eating into AI’s share of passenger traffic in/out of India to these countries (CAG 2011: xii). The lack of planes to fly within India resulting from the delay in ordering new aircraft also had an effect on the AI’s passenger share within the country. The national carrier’s share of domestic passengers dropped from 23.1% in 2005–06 to 13% in 2011–12 (DGCA 2017).

Work in Progress

As part of the turnaround plan, the government agreed to restructure some of AI’s debt to reduce the interest burden and also infuse capital to cover the cost of new aircraft. This was however conditional on AI meeting specific performance targets every year. The infusion of capital, had it happened immediately, would have helped it in its turnaround initiatives. Instead, the government went for piecemeal recapitalisation on an uncertain schedule.

Subsidiaries were created for maintenance repair and overhaul (MRO) and ground handling services. An old criticism of AI was that it employed too many people and hence was inefficient. With the creation of the subsidiaries, the manpower employed per aircraft became comparable to other private airlines.

Between 2011–12 and 2015–16 (financial years), the last year for which official financial results are available, the airline showed a steady improvement in terms of its operational profit/loss as well as passenger load factor—the percentage of seats on offer that were filled. In 2015–16, the airline made a small operational profit, two years in advance of the turnaround milestone. Its low cost international airline subsidiary, Air India Express and its ground and cargo handling services company, AISATS also made profits (Table 1).

AI’s financial results for 2016–17 are not officially available but indications are that there will be a significant improvement over the previous financial year in EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization) (Ghosh and Ghosh 2017). In answers to questions raised in the Lok Sabha, the MCA stated that AI was expected to improve its revenues in 2016–17 by 10%, revenue passenger km (RPKM) by 6.8% and passenger load factor by 6.2% (MCA 2017b). The provisional estimate for 2016–17 (financial year) was an operational profit of ₹1,086 crore and a net loss of 1,989 crore (MCA 2016a). Though AI continues to make a net loss because of interest outgo on debt which in 2015–16 was about ₹4,000 crore, the secretary, civil aviation, went on record in October 2016 to state that he expected a net profit by 2018–19, ahead of the turnaround plan which projects net profits only by 2021–22 (Mishra 2016). All information available publicly points to a continuing improvement in performance.

However, for AI to remain competitive in the longer term, steps need to be taken about its huge debt that has been a drag on the airline. Leaving aside low interest aircraft loans, the outstanding debt is around ₹30,000 crore, 90% of it is from public sector banks and financial institutions (MCA 2016b). The airline has prime real estate assets which it has found difficult to sell because of bureaucratic delays. If the government were to provide assistance in restructuring the debt, selling AI’s real estate assets and speed up infusion of the remaining capital of about ₹6,000 crore promised as part of the turnaround plan, the airline should be on a good wicket.

Chequered History

The basic credo of supporters of privatisation is that the state should withdraw from the provision of all services (and production of all goods) which private corporations are able and interested in providing (producing). The only exception to this would be a “market failure” which render private players incapable of providing (or unwilling to provide) these services. The argument in support of such a belief is that state-controlled enterprises cannot function as efficiently as private corporations.

How does this argument stand up against the actual performance of India’s airlines over the last two decades?

Several early players such as Damania, Modiluft, Natural Energy Processing Company (NEPC) and EastWest folded up, some under a cloud. Air Deccan, the second largest airline in India in 2007, ran into losses and was ultimately taken over by Kingfisher Airlines. Kingfisher became defunct after borrowing ₹7,000 crore from public sector banks. Sahara was taken over by Jet Airways. Spicejet went close to bankruptcy in 2014–15 stopping operations and stranding passengers without notice and has come back only after a large equity infusion from a promoter.

In 2003–04, before the emergence of competition from low cost carriers, Jet Airways accounted for 44% and the public sector airlines together 43% of domestic passenger shares (DGCA 2017). An IMRB survey in October 2004 rated the Indian Airlines as the “most preferred airline”, above Jet (Sen 2009). The low cost carriers had a huge effect on the full service carriers of that period—IA (AI), Jet and Kingfisher. Kingfisher became bankrupt in 2012. Jet was able to survive only after equity infusion by Etihad of Abu Dhabi in 2013. The government appears to have played a role in the rescue by increasing the bilateral entitlements of Abu Dhabi (the number of passenger seats each way between India and Abu Dhabi), which coincided with the Jet–Etihad deal (Phadnis 2013). In 2017 till May end, Jet’s share of domestic passengers was 15.4% and AI’s was 13.3%, the rest being taken by low cost carriers (DGCA 2017). Jet and Indian Airlines (now Air India) have had a similar fall in share of passenger traffic within India after the entry of low cost carriers.

The finance minister has used the low passenger share to deride AI publicly to create public opinion in favour of its privatisation. The fact is that in 2015–16 compared to 2012–13, AI has flown 29% more passengers within India and increased its passenger load to 78.9% from 68.3%. During this period, the AI’s “available seat kilometres” increased only by 6% (DGCA 2017). What this points to is that its passenger share has been limited by the number of aircraft it has available to fly. As the MCA itself revealed in Parliament, there has been no capacity induction into the AI while private airlines have added substantial capacity. Between 2013–14 and 2015–16, AI’s capacity share in the domestic market came down from 17% to 15% (MCA 2016c). Its market share has come down because of decreasing capacity share. The government must own its share of responsibility for this situation.

If the measure of “efficiency” of an airline includes efficient use of capital and labour and providing services without disruption, then looking at the two decades of turmoil in the airline industry, it is hard to accept that private airlines in general have been necessarily managed efficiently.

Unsustainable Debt

Extending the discussion of efficiency to India’s private corporate sector as a whole, it is useful to delve into what has been termed the “twin balance sheet problem.”

Over the years, India’s private corporations have borrowed heavily from banks to grow their businesses. Some of these businesses have failed and others are not generating enough revenue to service their debt. The banks who have lent them money have lost interest income and are in danger of having to write off their debts. It is estimated that three-fourths of all corporate lending could be from public sector banks (Chakravarty 2016).Public sector banks bear the brunt of the bad loan problem.

The government has stonewalled attempts to get the banks to name the bad debtors among private corporations. However, piecing together information from different sources, one finds that more or less all of India’s large industrial houses are involved.

A 2012 Credit Suisse report featured 10 large manufacturing houses—Lanco, Jaypee, GMR, Videocon, GVK, Essar, Adani, Reliance (Anil Ambani), JSW and Vedanta—with high levels of debt that they would find hard to service. A follow-up by Credit Suisse in 2015 found that the financial condition of these groups had deteriorated despite their attempts to sell assets to pare debts. These groups accounted for 27% of all corporate loans from the banking system (Sanjay 2015). In August 2016, the government stated in Parliament that the top 10 corporate groups owed public sector banks and financial institutions ₹5.7 lakh crore (PTI 2016). The businesses of these groups span areas extending from military hardware to steel, coal, power, oil and gas, roads, airports, railways and ports.

In June 2017, the Reserve Bank of India (RBI) identified companies of three groups from the list—Lanco, Essar and Jaypee—and nine other companies which together owed ₹1.75 lakh crore to banks to be dealt with under the bankruptcy code. It is estimated that at least half the debt will have to be written off by the banks.

In the telecom sector, the debt of India’s top seven telecom companies—Bharti Airtel, Vodafone, Idea, Reliance Communications, Reliance Jio and Tata Teleservices—increased by 20% in 2016–17 to ₹3.6 lakh crore and all the companies (except for the new entrant Reliance Jio) have problems servicing their debt (Sarkar 2017). The State Bank of India has the largest exposure to the industry and its chairperson has pleaded with the government to help the industry by deferring spectrum payments, providing duty waivers and reducing the goods and services tax (GST) rate in order to prevent its loans from imminently becoming non-performing assets (NPAs) (TNN 2017). While the incumbent operators blame Reliance Jio for their debt servicing problems, the latter points out that these companies were working with insufficient equity, relying too much on debt financing (PTI 2017).

A recent example from the power sector involves three large corporate houses—Tata, Adani and Essar. All of them won competitive bids based on tariff and set up power plants in Gujarat using imported coal. Their contracts have no provisions to link tariff with coal prices and the companies are running at a loss after coal prices increased and are unable to service their debt. The government is reportedly putting together a rescue package where the companies will be brought under state ownership (Dutta 2017).

The above examples do not capture the enormity of the bad debt problem. During the period 2013–15, public sector banks wrote off ₹1.14 lakh crore of debt (Mathew and Narayan 2016). Several additional lakh crore will likely be written off in the coming years. Eventually, the banks will have to be “bailed out” by the government through capital infusion.

The unsustainable debt of so many private corporations across a swathe of sectors periodically requiring government rescue—including debt write-off by public sector creditors—hardly speaks well about the innate superior efficiency of the private sector.

Timing of Privatisation Decision

Why has the government announced the decision to privatise AI—a decision taken in great haste—just at a time when the airline is on the verge of becoming profitable?

The decision comes at a time when the government’s “reform” credentials are coming under question. These “reforms” which were eagerly anticipated by business leaders and foreign investors have got derailed and include making land acquisition easy, relaxing labour regulations for large factories and doing away with the obligations of banks to lend to the “priority sector” (farmers, small businesses, etc). The government’s inability to make a major dent in the “twin balance sheet problem” has severely affected new lending by banks to the private corporate sector. All this has affected the sentiment of business towards the government.

The announcement of the privatisation of the AI, considered a “soft target” by the government, is perhaps aimed at reversing this state of affairs. As a business newspaper editorialised,

(T)he privatization of Air India will boost investor sentiment in a big way as it demonstrates the government’s willingness and ability to take the reforms process forward. (Mint 2017)

Case against Privatisation

Private investors are interested in the AI because it is an operationally profitable airline with a large fleet of mainly new aircraft, a profitable low cost international carrier like Air India Express, a profitable ground handling services venture, valuable immovable assets in land, offices, hotels and hangers; skilled human resources in the form of a large number of pilots and engineers; the only MRO set-up in India, prime slots at airports in the country and around the world, membership of Star Alliance, etc. The AI is also the largest Indian carrier of passengers across the country’s borders.

The privatisation of AI is only possible if the government writes off a significant part of its debt. This debt accumulated for the large part until 2012 has acted as a millstone around the airline’s neck and delayed its return to profitability. There are various proposals being mooted to once again restructure AI to make its main business—that of flying passengers—attractive to potential buyers. Whatever restructuring is done, there is no getting away from the fact that its debt has to be written off.

The responsibility for this debt rests squarely with the government and is due to its many omissions and commissions in the past—delayed acquisition of aircraft, late capitalisation of the airline, interference in decisions related to aircraft acquisition, the ill-thought-out merger of the AI and Indian Airlines and not providing a level playing field to the national carrier on international routes.

If the government extends the same benefits to the public sector airline (that it wants to for a possible private owner by writing off part of its debt), it will be able to forge ahead. However, given that the airline is close to becoming profitable, it appears that even assistance with restructuring of its debt to public sector banks and sale of its properties will help it to reach profitability and manageable levels of debt.

Publicly owned airlines can also be run efficiently. Singapore Airlines is an example. An efficiently run public carrier can bring stability to air transport services and provide the right competition to private airlines. It can also fulfil objectives that are not dictated by the exigencies of maximising profit—like providing essential coverage to underserved areas or unscheduled services to the Indian diaspora during an emergency— as it does now.

The corporate business press is lauding the government’s privatisation decision, hailing it as the resumption of “reforms” which will consist of more disinvestment and privatisation. It is hard to understand how mismanaging public assets and then selling them is “reform.” Only those who see opportunities for profit in such sales can pretend that these are reforms.

The real reform that India needs is in the manner that public sector enterprises are managed. This reform must ensure at a minimum that there are well-defined policy guidelines for these enterprises available in the public domain, that the enterprises are compensated for costs incurred in implementing specific government policies not in line with their commercial objectives, that there is professional management in place and that this management is shielded from interference from politicians and bureaucrats.

The present government came with the claim of providing “good governance.” There is no reason why this should not extend to the management of public sector enterprises.

Defending the Diaspora

Picture shows Indian nationals stranded in Yemen being evacuated from Djibouti on board an Indian Air Force aircraft.

Nitin Pai in The Hindu


New Delhi ought to review the risks to its diaspora populations and create the capacity to act in their interests should the need arise — without offending foreign governments, of course.

Many people involved in the massive evacuation of Indian expatriates from Kuwait in 1990 are disappointed at the mischaracterisation of the role of the politicians, diplomats and airline officials in Airlift, a new Hindi film based on that incident. While film-makers have dramatic licence to set fiction against facts, diplomats are rightly upset that the story of the biggest ever air evacuation in history, carried out by a resource-strapped government in the throes of political and economic crises, has deliberately painted foreign service officers in negative light.

K.P. Fabian, who headed the Gulf desk at the Ministry of External Affairs (MEA) during that episode, is quoted in this newspaper as saying “young people who are watching this film are getting a wrong impression of their history”. Nirupama Rao, former Foreign Secretary, criticised the production of falling short on its research. Even the MEA’s official spokesperson stepped in to set the record straight. It is unfortunate that the producers felt the need to reinforce popular prejudices of uncaring bureaucrats in that one area where that prejudice could not be more wrong.

Whatever you might think of the Indian government, when it comes to expatriate citizens in conflict zones, our diplomats go to great extents to ensure their safety. The airlift from Kuwait is only the biggest and the most famous one — more recently Indian diplomats and armed forces coordinated mass evacuations from Lebanon (in 2006), Libya (2011) and Yemen (2015). This is a job our diplomats, armed forces and airline officials do well, and it is unfair and self-defeating to cast them in poor light.

The damage, however, is done. But the public interest arising from the movie and the debate over the accuracy of its portrayal of the government’s role is a good opportunity to focus on the issue of diaspora security.Indians around the world

According to government figures, as of January 2015, there were 11 million Non-Resident Indians (NRIs) and 17 million Persons of Indian Origin (PIOs) around the world. The largest populations were in the Gulf, the United States, United Kingdom, Southeast Asia and Nepal. On the thin end, there were seven Indians in North Korea, two in Nauru and one in Micronesia.

Until the turn of the century, the government’s relationship with overseas Indians has been twofold. Indian citizens (NRIs) were treated differently from ethnic Indians holding other citizenships. While the government concerned itself with the former, the latter were encouraged to be loyal and upstanding citizens of their respective countries.

In the recently released Netaji Files, in 1960, Prithi Singh, India’s envoy to Malaya, reminds headquarters that “our own expressed policy has been to encourage persons of Indian origin, domiciled abroad, to absorb themselves into the life of these countries and I feel that any step which we might take which helps them to maintain rigidly their emotional and/or communal links with India, actually prevents them from giving their whole-hearted loyalty to the countries of their adoption”.

This policy has served India and overseas Indians well. If the Indian diaspora is highly successful and integrated into the societies around the world, it is in part due to the fact that the loyalties of persons of Indian origin are beyond doubt. They might retain Indian customs and faith, but they bat for the interests of the country they are citizens of.

Courting the diaspora

The longstanding policy began to shift in the 1990s, with India looking East and West initially due to economic adversity and subsequently due to opportunity. The Atal Bihari Vajpayee government put the courtship on a formal footing with a high-level committee recommending the long-term visas under a PIO Card Scheme, a grand conference and recognition in the form of awards. The United Progressive Alliance government constituted an entire ministry for overseas Indians which, wisely, the Narendra Modi government has recently decided to merge back into the MEA.

No Prime Minister has gone so far out to court overseas Indians as Narendra Modi. Reaching out to the humble construction worker, the middle-class professional and the wealthy elite has galvanised the emotional links NRIs have with their home country. Mr. Modi has reinforced the growing feeling among NRIs since the turn of the century that India is a great country to be from.

Mr. Modi’s highly publicised engagement of overseas Indians changes the tenor of the government’s old policy to downplay their emotional links to India. It is for the Prime Minister to decide what the new policy should be. What we should recognise is that change comes with risks that need to be managed.

First, to the extent that New Delhi is seen to engage NRIs and protect their interests in foreign countries, foreign governments will not consider it an intrusion in their politics. However, if New Delhi begins to speak out on behalf of ethnic Indians who are not Indian citizens, then the interventions are likely to encounter resistance. In 2007, Malaysian politicians reacted viciously when Indian politicians made comments critical of Kuala Lumpur’s strong-arm tactics against its Indian minorities.

The modern world is constructed on the Westphalian model, where sovereign states relinquished their right to intercede on behalf of their religious and ethnic kin in other sovereign states. To violate this norm risks inviting any number of foreign interventions into our own domestic affairs.

Second, the reputation that PIOs have cultivated over several decades for being loyal citizens of the countries they live in can come under a shadow. In many parts of the non-Western world, countries are still reconciling with their nationhood and identity.

Any suspicion, even at the margin, of PIOs having multiple loyalties can be detrimental to their interests. Notice how the Singapore government insisted that only NRIs attend Mr. Modi’s public event, demarcating the line between its own citizens of Indian ethnicity and expatriates with Indian citizenship. 

Airlifts of the future

Finally, the airlifts and naval evacuations of the future might be more complex in a context where there is a conflation of NRIs, PIO card-holders and other ethnic Indians with foreign citizenships. During crises when time and resources are tight, who should Indian diplomats prioritise? Will they have moral grounds to put non-citizens on a lower priority than citizens? If they do, what impact will it have on the Indian government’s reputation and the expectations it has created? New Delhi ought to review the political and security risks to its diaspora populations and create the capacity to act in their interests should the need arise.

It is unclear if India’s overstretched diplomatic corps has been tasked with paying greater attention to multilateral arrangements, institutions and agreements that pertain to diaspora-related interventions.

Similarly, the external intelligence establishment needs to be reoriented towards gathering and analysing information relating to the threats that diaspora populations might face. The conceptual move from defending the homeland to defending the diaspora needs a concomitant retooling of government machinery.

Diaspora security will require more naval ships, wider patrolling, foreign berthing and outposts. Military heavy lifting capacity apart, it will also require policy measures, like for instance, licence conditions in civil aviation requiring private airlines to put their aircraft and crew at the government’s disposal during emergencies.

The commitments that India makes require the state to have the capacity to redeem them. If we widen the scope of our commitments, we must invest in the capacity to carry out the airlifts of the future.

How Jet Airways acquired monopoly power in privatised Indian civil aviation

Jitender Bhargava in The Business Standard

It is generally agreed that Indian aviation has failed to achieve the potential that the country offers. Whilst most have attributed the industry's lack of robustness to unclear government policies, high operational costs, and so on, few have ever cited the role of private Indian carriers in influencing policies.

Since such instances haven't been tabulated, one is oblivious to the scale of havoc caused. If quantified, the financial loss alone would run into crores of rupees besides the harm it has caused to the industry.

Perhaps the first instance of blatant interference in getting a policy tweaked was when the entry into the sector of the Tatas and Singapore Airlines was blocked in 1997. The revised policy ensured that no foreign airline could invest in an Indian carrier even while Kuwait Airways and Gulf Air owned a 20 per cent stake each in Jet Airways. The revised policy also gave Jet Airways time to buy back the stakes.

A couple of years later when Tata-Singapore Airlines submitted a proposal to acquire a 40 per cent stake in Air India, mischief was again in evidence. Singapore Airlines was forced to opt out of the race citing opposition. The intent was clear: an existing airline did not want a strong competitor in a rejuvenated Tata-Singapore Airlines-managed Air India. Imagine: if a Tata-Singapore Airlines-managed Air India had indeed become a reality, taxpayers wouldn't have had to fund the national carrier's bailout at a cost of Rs 30,000 crore. Air India, under the new management, would also have been an airline to contend with and not what it has become today.

In the previous decade, the government, with Praful Patel as the civil aviation minister, saw the introduction of an irrational 5/20 policy. This helped only one private airline at that time and barred others who did not possess five years of domestic flying experience and a fleet of 20 aircraft from taking to international skies. The current aviation minister, Ashok Gajapati Raju, is now seeking to do away with it. For that particular airline, this policy meant a lot. It could for some years reap the advantage of being India's only international airline besides Air India, whose ethnic traffic it could encroach upon to fill up its flights.

If crony capitalism has been beneficial for some, it has also unwittingly taken a toll of at least one airline. The 5/20 policy was a contributing factor in financially crippling Kingfisher. In his quest to fly internationally without waiting to complete the requisite five years, Vijay Mallya bought over Air Deccan, which was soon becoming eligible for international operations, at a price that defied logic. Kingfisher Airlines eventually perished under the weight of debt.

Air India was often "forced" to withdraw flights from certain sectors by citing "economical unviability". It wasn't a coincidence to see a private airline mount flights soon thereafter with market and passengers offered on a platter by the obliging national carrier.

No less intriguing has been studied silence of private airlines when seats were being recklessly doled out to foreign airlines though the policy was destined to harm them too, not just Air India. And today, we have the situation of Indian carriers failing to make a mark on the international routes with foreign airlines not only having been given a head-start but also a stranglehold on Indian market. The promoters of Indian carriers simply ignored the question of how their fund-starved carriers would compete on their home turf with mega global carriers bestowed with disproportionate quantum of seats and flights.

The way the Jet Airways-Etihad agreement was facilitated was yet another instance of external factors influencing a decision. The government granted 37,000 additional seats to Abu Dhabi, over and above the existing 13,000 seats, to help Etihad acquire a 24 per cent stake in Jet Airways.

Even though other Indian airlines and airports, notably private-run airports at Delhi and Mumbai, realised how the Jet-Etihad combination and the accompanying huge quantum of seats would take away their business and harm their long-term interests, they did nothing except voicing concerns to the civil aviation ministry.

As if no lessons were needed to be learnt for putting the sector on track, some carriers have, in fact, facilitated their political masters' wrongdoing. When Gulf countries sought additional seats, some Indian carriers at the slightest prodding gave it in writing that they needed additional seats. This helped build a case for doling out seats to foreign carriers while the records showed that the ministry was only acquiescing to the requests of Indian carriers. These carriers haven't used a single additional seat so far.

The mess that we witness today is thus not only a consequence of flawed government policies but also constant meddling and complicit silence of some Indian carriers. Do they deserve sympathy for the poor financial state of their airlines? Perhaps not, given the harm they have caused to the industry.

Vaastu shastra to oil massages: Bhargava reveals what killed Air India

Sindhu Bhattacharya in First Post.Business 

Who killed Air India? Jitender Bhargava, who spent more than two decades with the airline in several executive positions, has spared no one in his book ‘Descent of Air India’. The ministry of civil aviation, successive Air India chairmen, employees and of course the various ministers who have held sway over the airline – everyone has been in the line of Bhargava’s fire. He has leveled serious charges against at least one Chairman of the airline and one minister who held charge of the Ministry of Civil Aviation for long years. But in this long narrative of what ails the airline, what led to its decline and what should be done to improve its fortunes, Bhargava has also managed to regale his readers with some rather interesting anecdotes. 

The one about former Chairman V Thulasidas resorting to vaastu shastra when the airline’s financial health was fast declining shows how instead of tackling the situation, Thulasidas allegedly waited for divine intervention. This is the same chairman who allegedly doubled the aircraft order for Air India which subsequently pushed the airline into deep losses. Bhargava says vaastu expert Raj Shekhar Chawla from Hyderabad was appointed to guide the chairman on “where to place his desk, where to conduct his meetings with colleagues and which doors to the conference room to keep shut or open”. He also narrates Thulasidas’ alleged penchant for having an AI employee accompany him from his house to work and back every day, with a peon being instructed to keep the lift doors open when the chairman’s car was nearing the office!

In this long narrative of what ails the airline, what led to its decline and what should be done to improve its fortunes, Bhargava has also managed to regale his readers with some rather interesting anecdotes. 

What is ‘shortfall allowance’? It’s the money that senior pilots were paid even if they did not fly as many hours and junior pilots flew by 1994. Because earnings of a senior pilot cannot be below those of a junior one, never mind how many hours of flying the senior did. This scheme, which replaced fixed daily allowances for pilots till then, led to an increase in expenditure of Rs 307.2 crore during 1995-1999 says Bhargava. It also meant that often, senior pilots were indeed being paid for not flying. Ludicrous, isn’t it? 

Even Naresh Goyal and his legendary powers of persuasion find a mention in the book. Bhargava has alleged that since 1970s, Jordan’s ALIA group wanted air traffic rights to India despite there not being enough air traffic between the two countries. This request was refused once, then a second time in 1979. But in 1981, ALIA was granted full traffic rights. “The local manager of the airline representing ALIA was none other than the current chairman of Jet Airways – Naresh Goyal”. 

But the most unctuous reference is made to Kerala oil massages which the then minister Shahnawaz Hussain wanted on board Air India flights. Bhargava says the minister announced this decision to the media first and then asked the airline to implement it. Never mind if some passengers object to the smell of the oil, if the aircraft’s upholstery would get spoiled, even if there is no space really to accord anyone having a massage some privacy. “The minister suggested that we provide some curtained enclosure within the aircraft.” The author says though the massage was feasible in a separate enclosure, it would also warrant a bath on board! This is when the proposal was finally buried. To assuage the minister’s wish however, a Delhi-based company was persuaded to introduce the Kerala massage at Delhi airport and the service continued till Shahnawaz was minister. 

The author speaks of new uniforms for cabin crew and ground staff and how Ritu Beri went one up on designers such as J J Valaya and Tarun Tahiliani in 2007, when new aircraft induction meant new uniforms. Bharagava alleges that Beri was rejected in the first round of approvals for uniform designing but she offered to waive the designing fee and the tendering process was shelved mid way. “How Ms Beri was compensated for her efforts makes for an even more interesting story. Thulasidas deputed a team of Air India officials to her farmhouse on the outskirts of Delhi. …….Initially she offered to supply the sarees at Rs 4000 each but that was way more than the amount we were paying the existing vendor – Rs 1600 per saree. When the team brought that to her notice, she agreed to drop the price to Rs 3600. She sourced the uniforms from one of our existing vendors and we ended up paying an additional amount Rs 2000 per saree…… J J Valaya and Tarun Tahiliani took AI to court for wasting their time and effort and were reimbursed all costs in an out-of-court settlement”. 

Did you know that earlier, officials from the Air India’s Commercial Department would visit large corporate houses with a flight timetable and a small gift – a clay model of the Maharajah or grey overnight bag – to promote airline’s sales? Bhargava says he suggested that this practice be restarted sometime in 2002 and that airline’s senior managers should personally meet Ratan Tata, Ambanis, Birlas, Mahindras and the Godrej family members to hardsell Air India’s First and Business Class offerings. Of course, the airline never took up this suggestion.  

How Indian aviation was destroyed

Kingshuk Nag in Times of India

Have you read the history of India? If you have, you must be familiar with the conflict of the English and the French on the Indian soil in the 18th century. The fight was to seize control over the Indian markets. Now in an encore of sorts, two airlines from the Gulf region, but belonging to different sultans, are fighting for control of the Indian aviation sector. Help may have come to them, maybe inadvertently, from civil aviation minister Ajit Singh and former civil aviation mantra Praful Patel.

Ajit Singh is in the news these days for trying to ram down the Jet-Eithad deal, through which this Abu Dhabi-based airline will get access to the lucrative Indian market (Indian passengers going abroad) and enable the airline to boost its revenue.

The deal is being looked into, with the Prime Minister’s office having raised some objections, but Ajit is confident of pushing through the deal and has even called on the UPA chairperson Sonia Gandhi to explain everything to her.

The deal was preceded by something unusual: at the end of April, the GOI (which means the civil aviation ministry, which essentially means Ajit Singh) suddenly increased the traffic rights with Abu Dhabi (number of passengers who could fly to Abu Dhabi from India through Indian carriers) to 36,670 per week. This raised eyebrows – including that of the Parliamentary standing committee on transport, tourism and culture which wondered why flying rights were being extended because Indian carriers did not have the capacity (in terms of fleet) to carry these many passengers per week to Abu Dhabi from India. But now with the benefit of hindsight, we are wiser. Under the Jet-Etihad deal, the latter company took up 24 per cent stake in Jet Airways. Incidentally, the Abu Dhabi-based company paid a premium of 32 per cent to acquire these shares. Although Jet will get Rs 8,574 crore in foreign investment due to this deal, analysts aver that the deal has clauses which will in effect turn over the management of the company to Etihad. Thus Etihad will ride piggy back on Jet to transport Indians.

Ajit Singh’s piloting the Etihad deal will have the effect of enabling it to catch up with Emirates Airlines (the official airlines of the UAE). Emirates Airlines dominates the market to the Gulf with 30 per cent of the passengers flying out of India to that area using Emirates to go there. Now Etihad will get a chance to capture part of this traffic and provide stiff competition to Emirates Airlines.

For those not well-versed with aviation matters, the fight between Emirates Airlines and Etihad will not be just for traffic from India to the Gulf but also for onward traffic to Europe and North America. Readers may have noted that a decade ago when Indians went to Europe and North America they often changed flights at Frankfurt. But nowadays, passengers mostly change flights at Dubai. Why? Because Dubai is the hub of the Emirates Airlines and this airlines flies passengers out to Dubai, from where they board onward flights to Europe and North America. This brings enormous business not only to Emirates Airlines but also to Dubai as a place (reason: duty free purchases at the airport and some passengers taking a break in Dubai for a few days, etc). Now within a year or so, Indian passengers will also fly through Abu Dhabi for their journey to Europe or North America and benefit the economy of Abu Dhabi. It is obvious that with its small population: the middle-east market (that is, local origin or Arab passengers flying out of the middle-east) cannot help to create mega hubs for neither Emirates Airlines at Dubai or Etihad at Abu Dhabi and bring tremendous benefits for their respective economies. Both of them can only grow if they can exploit the huge Indian traffic that flies from India to the Gulf and to Europe and North America.

Ajit Singh’s action may have the effect of providing level playing field for Abu Dhabi-vis-a-vis Emirates  But the man whose actions resulted in out of the ordinary benefits to Emirates was Praful Patel, who was civil aviation minister for seven years from May 2004 to January 2011. He is the man whose tenure, analysts say, saw the beginning of destruction of the Indian aviation sector. This is even as Emirates got empowered and Dubai became a global hub.

When Praful came to the civil aviation ministry with the formation of the UPA government, Air India was the market leader in India with 42 per cent market share. A proposal had been mooted by the earlier NDA government to augment the fleet of Air India by 28 but the deal had not been finalized. When the proposal came to Praful he raised the numbers to 68 with one stroke of the pen and raised the cost to Rs 50,000 crore. All this was done without any revenue plan or even a route map to deploy so many additional aircraft. The beneficiary was Boeing from whom 27 Dreamliners were proposed to be bought. The Dreamliner was then only on the drawing board. The additional secretary and financial adviser in the civil aviation ministry V Subramanian opposed the move but he was shunted off. Analysts also questioned why an airline with a turnover of Rs 7,000 crore should place orders of Rs 50,000 crore with no idea of how to use the planes. This would only put a huge debt burden on the airline and damage it badly. Interestingly the Comptroller and Auditor General (CAG), which looked at the deal later, reported: “The acquisition appears to be supply driven ... the increase in number does not withstand audit scrutiny, considering the market requirement ... or forecast of the future, also the commercial viability projected to justify the acquisition...”

Caught on the wrong foot due to this acquisition, Patel did something else which virtually rang the death knell for Air India. He merged Air India and Indian Airlines arguing that this would create a much larger aviation entity that could compete better and also utilize the new aircraft which had been ordered. But in the event, this has had the effect of creating a monstrosity and mounting losses. Even today the new entity – which is called Air India – is plagued by severe HR problems arising out of the merger.

As if this was not enough, the airline was forced to vacate (no one till day knows why) its lucrative routes where foreign airlines and even airlines like Jet stepped in. As a good example, in October 2009, Air India decided to opt out of the Kozhikode-Doha-Bahrain route. This was one of the highest-revenue-earning flights of the airline and it was a route which was 511 seats short per week. No reasons were given for the withdrawal and in a short while foreign airlines moved in to exploit the readymade market. The airline’s unions protested but to no effect. Interestingly as early as May 2005 in a confidential memo to the cabinet secretary, the then managing director of Indian Airlines (the merger had not taken place then) complained that the Indian Airlines was being forced by the civil aviation minister and his officer on special duty to take financially damaging and commercially unviable decisions. These included forcing IA to make way for other operators. The MD said that he was forced to seek flight slots for the airlines in the UK and USA during the winter schedule (when traffic was lesser) even as other airlines were allowed to fly to the destinations in summer. Nothing came of the complaints: the managing director made way but the minister continued.

Now we have come to a position that Air India is all but dead, groaning under a massive debt burden and huge losses. Air India has thus ceased to be a player and foreign airlines have captured the Indian skies. This is not the end of the story: with the actions of the Indian ministers resulting in establishment of aviation hubs in Dubai and Abu Dhabi, Indian airport operators are unhappy and rightly so. GVK and GMR, which operate airports in Mumbai and Delhi respectively, wonder why the airports in the two cities cannot be built as hubs. After all the entire Indian traffic that is going to the west through the middle-east can easily be sent to the final destinations through Mumbai or Delhi, if hubs are developed there. This is especially because the long-haul Dreamliner planes are now being inducted into the fleet of Air India. These planes can fly nonstop to any part of the globe. In this way they are a threat to the concept of mid way hubs.

For those who may not be aware, Praful Patel, who represents the Nationalist Congress Party (NCP), comes from a beedi-manufacturing family. After his father died, Patel a product of Campion School and Sydenham College in Mumbai, took over the business and expanded it. The Mumbai schooling made him savvy, running the business from a young age made him street smart. He is popularly known as the beedi king of India.The family company, Ceejay group, rolls over 60 million beedi sticks a year. The beedi leaves are grown in central India, and Patel’s constituency in Bhandara-Gondia although in Maharashtra is not far from Chhattisgarh. Praful Patel’s father also doubled up as a politician and the son followed in his footsteps becoming an MP for the first time in 1991. The UPA government being a coalition government, Patel’s actions were tolerated for a long time. But in the end he was removed and pushed to the heavy industry ministry as full-fledged cabinet minister. All the while in the civil aviation ministry Patel, now 56, was a minister of state but with independent charge.

Seventy-four-year-old Jat leader Ajit Singh is the son of former Prime Minister Charan Singh. A product of IIT Kharagpur, Ajit worked in IBM in the US for 17 years before returning to India and jumping into politics. His Indian National Lok Dal (INLD) – with 5 MPs – became part of the UPA in 2011 and shortly thereafter he was made civil aviation minister.

Civil Aviation in India

India mulls over 49% overseas share in airlinesBy Raja Murthy

MUMBAI - The Indian government on April 12 postponed to this week an eagerly awaited decision to allow foreign airlines own up to 49% stake in Indian carriers. But overseas funding alone is unlikely to rescue India’s struggling US$12 billion civil aviation industry.

It's more a case of mismanaged potential that has caused five out of the six Indian carriers, except Indigo, to have accumulated losses of nearly $2 billion in the past two years. India, the world's ninth largest civil aviation market, had passenger traffic doubling  to over 150 million in 2011, from about 73 million in 2005-06.

India aims to be among the world's top three aviation markets within a decade. In between are mountains to climb and some strange oddities to correct - such as building multi-billion dollar luxury airports in an industry dominated by low-cost airlines.

The foreign direct investment (FDI) move, if it materializes as part of the mountain climbing process, could give desperately needed survival cash and breathing time to nearly dead flying companies like Kingfisher Airlines. The Vijay Mallya-promoted carrier is drowning in a debt of $1.3 billion, with no new loans forthcoming, with over 60% of its aircraft fleet grounded and its employees receiving salaries for December 2011 only on April 9.

The state-owned carrier Air India has similar mismanagement woes, but continues to receive public money to bankroll it. On April 12, the government approved 300 billion rupees (US$5.7 billion) as bailout and part of a revival plan for Air India across the next eight years. This after Civil Aviation minister Ajit Singh informed parliament that Air India incurs losses of $1.9 million every day, or over $700 million annually.

Whether Air India would fare better without government ownership is as moot a question as whether more funding, including FDI, could only be more investment down the drain. Waiting to be surgically treated are roots of the problem such as unviable operating costs for airlines.

Unfairly high taxes on aviation fuel have long been a major complaint for India's airline industry. Aviation Turbine Fuel (ATF) continues to be over 50% costlier in India than in Singapore and Malaysia. Fuel costs contribute about 45% of the operational costs of India's airlines.

Yet India's state-owned oil companies sell jet fuel cheaper to international airlines than for domestic flights in Indian airports. Indian Oil, for instance, sells jet fuel at $1,010 per kilo liter for international airlines in Mumbai (March 1, 2012 prices), while domestic airlines pay a pre-tax cost of $1,316.77. International airlines are free from sales tax on aviation fuel, while domestic airlines pay an additional 26% sales tax that local state governments levy.

Instead of the obvious step of reducing aviation fuel taxes to reasonable levels - or to only at least 25% above international levels - the Indian government earlier this year allowed domestic airlines to directly import aviation fuel. That seems as bizarre as asking an impoverished dying patient to go overseas to buy medicine available down the street.

Even more peculiar is that India exports nearly half its production of aviation fuel. According to Ministry of Petroleum data, India exported 4.478 million tonnes of aviation fuel in 2010-2011, out of total aviation fuel production of 9.570 million tonnes,

Fuel costs are only part of the problem. Aviation infrastructure growth appears heading in a direction different from requirements for industry growth. Privatization of metropolitan airports, for instance, resulted in multi-billion dollar upgrades for the Mumbai and Delhi airports, and new airports for Bangalore and Hyderabad. The impressive new airports though are driving up operational costs for a budget airline industry that critically needs low-cost infrastructure.

The spectacular new Terminal 3 of New Delhi's is itself both solution and problem. Built and operated by the Delhi International Airport (P) Ltd (DIAL) - a joint venture consortium of global infrastructure company GMR Group, Airports Authority of India, Fraport and Malaysia Airports Holdings Berhad - Terminal 3 makes Indira Gandhi International Airport (IGI) one of Asia's largest public buildings and the world's second-largest integrated airport, after Beijing Capital International Airport.

The $6 billion Terminal 3, spread along 4 kilometers and with a roof area of 45 acres (18.2 hectares), serves as future investment for Delhi having the world's fastest growing airport passenger traffic. According to the Montreal-based Airport Councils International, Delhi registered passenger traffic growth of 21.77%, faster than Jakarta's 19.2% and Bangkok's 12% growth. This compares impressively to the 1.8% air passenger traffic growth in North America.

But India's airlines and passengers are being asked to pay more airport fees and taxes to recover the multi-billion dollar costs for the new airports. Both Air India and Kingfisher Airlines alone owe the Delhi airport $100.4 million in airport fees. So airport employees are also suffering salary delays.

International carriers are too feeling the pinch. Malaysia's Air Asia, the continent's leading budget airline, announced termination of its flights out of the Delhi and Mumbai airports from March 24 this year, citing excessively high airport and handling fees and aviation fuel costs at these airports. Air Asia continues to fly from five other cities in South India.

The Airports Economic Regulatory Authority has proposed a 280% increase in landing and parking charges at Delhi airport, while the airport operator DIAL wants a 700% increase. Not just low-cost airlines, but Lufthansa, Air France, KLM and British Airways have announced putting on hold expansion plans in India due to the huge hike in operational fees at IGI Terminal 3.

Such headaches were not quite anticipated when an Air Deccan 48-seater ATR turbo-prop aircraft took off from Hyderabad to Vijayawada on September 26, 2003, to unofficially launch low-cost airlines in India. Since then, a heavily loss-making Air Deccan was bought by Kingfisher in 2007, and now a heavily loss-making Kingfisher is looking to sell itself to a foreign carrier.

The pending 49% FDI decision on the governmental anvil is actually a throwback to over six decades ago. In 1951, the government bought a 49% stake in Air India, founded and owned by the Tata Group. The government retained an option to buy another 2% stake and became owner. It did so under the Air Corporations Act of 25 August 1953 that nationalized all private airlines.

Air travel was booming in India in the 1950s, with cheaply available World War II surplus aircraft and India having bountiful skilled air pilots and maintenance crews after the war. The 26-page "Official Airline Guide" of July 1952, published by the Air Transport Association of India, lists schedules for about nine domestic airlines: Air India Ltd (also called The Tata Airline), the Air Services of India (also called the Scindia Airline), Airways (India) Ltd, Bharat Airways (also called the Birla Airline), Deccan Airways, Himalayan Aviation, the Indian National Airways, Kalinga Airlines and Air India International.

In 1953, India had over 20 private airlines, with unstructured growth without proper infrastructure creating market problems similar to the current woes of some domestic airlines. JRD Tata (1904-1993), called the father of civil aviation in the subcontinent, predicated an industry disaster. One of the reasons why the government nationalized the entire airline industry in 1953 was apparently to ward off many private airlines going bankrupt.

Now with Air India saved from bankruptcy with a $5.7 billion gift of public money, the government may as well consider re-privatizing Air India, and selling 49% of the stock back to its original owners the Tata Group.

The $5.7 billion bailout and the 49% FDI decision for overseas investors have better chances of working only if the government ensures there being low-cost operational costs to support low-cost air travel.

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

My Weltanschhaung - 14/02/2012

Being Valentine's Day, I am reminded of the guy who spoke at IIT-Kharagpur's humour festival - "Yeh Valentine day kya hai? Yeh to ek soone ka hiran hai jo dhanush banane wale companiyon ne bazaar me chhod rakha hai.! Translation, 'This Valentine's Day business is a golden deer released in to the market by firms selling bows'.

I am shocked at the competence of the managers of Jet Airways and Kingfisher Airlines who have not paid their staff salaries for two months. These are supposedly market savvy, professional and efficient firms.
What shocks me the most is the statement by Sanjay Aggarwal CEO of Kingfisher,  "We got hit by a couple of large unanticipated payments which had to be addressed on an emergency basis." 
How can you be unaware of such large payments coming up? Is there no penalty for not paying salaries on time? I think both these firms tactics aim to scupper any relief and rescue of Air-India, stating that they all need relief from the government.

I am surprised that the Israeli Prime Minister knew who attacked his staff in New Delhi even before the local police. The Israelis and its allies have been assasinating Iranian nuclear scientists without the same publicity though. The bomb blast in Delhi may be aimed at preventing India from signing up a bilateral treaty with Iran. Will the Indian government buckle under the pressure?

How to prepare a Public sector firm for Privatisation - the Air India story

Air India, India’s national carrier-turned-cadaver, is waiting for its last rites. When last heard of, the airline had turned in a loss of Rs 7,000 crore in 2010-11, and was investing in an oversized hat to hit the government for yet another bailout masquerading as a turnaround package.




Only, the amounts this time are too staggering for Pranab Mukherjee to agree to without a fight. According to a report in The Times of India, the airline will need equity support of Rs 43,255 crore just to stay afloat over the next 10 years. Mukherjee is hoping to raise that kind of money by selling public sector equity this year. If he agrees to bail out Air India, it’s as good as kissing goodbye to this moolah.



With liabilities of over Rs 47,000 crore, the airline is on the verge of defaulting on its loans. Mukherjee will thus have to chip in with some money willy-nilly – even if he is not asked for the full sum that SBI Caps has suggested as part of its revival plan for the airline. The newspaper says Air India will require Rs 8,372 crore this year itself – Rs 6,600 crore to pay its bills for 2011-12 and Rs 1,772 crore to keep up with loan payments.




But for all this, the airline still won’t be able to make a profit till 2017-18. Air India, it seems, has been fixed – and fixed for good – by former Civil Aviation Minister Praful Patel, who has often been accused by the unions of batting for Air India’s rivals till the ministry was prised away from his grip last January.



When Patel took over as Minister of State for Civil Aviation in 2004, the domestic carrier (then Indian Airlines) was market leader with a 42% share, but slipping. Today, it is No 5 – behind Jet, Kingfisher, IndiGo and SpiceJet – fighting extinction.



Here’s how Praful Patel did it – ruin Air India that is – and there’s nothing his successor Vayalar Ravi can do to rescue it.



First, load it with debt so high that it can never raise its head again. It is now clear the Air India’s financial problems began in 2004 when Praful Patel chaired a meeting of the board in which the airline suddenly inflated its order for new aircraft from 28 to 68 without a revenue plan or even a route-map for deploying the aircraft, says an India Today report.



An airline with revenues of Rs 7,000 crore was being asked to take on a debt of Rs 50,000 crore. Today, it’s losses themselves are Rs 7,000 crore. And the bailout it is seeking is as big as the cost of those 68 aircraft. The government might as well have gifted those birds to Air India.



Second, Patel presented a merger of Air India with Indian Airlines as the panacea for all ills. It is surprising how often ministers suggest mergers when public sector companies head for ruin. When telecom company MTNL was sliding, then Communications Minister Dayanidhi Maran was suggesting a merger with Bharat Sanchar Nigam Ltd. That didn’t happen, but both MTNL and BSNL are in the sick bay anyway. Praful Patel used the losses of Air India and Indian Airlines to push for their merger, claiming there would be cost savings from synergies. Worldwide, mergers usually destroy value. The Air India-IA merger has been the biggest man-made disaster in aviation history – thanks to their varying cultures and employee costs.



Says Gustav Baldauf, former COO of Air India who fell foul of Patel’s successor and had to quit: “The management never resolved the pending human resource (HR) issues related to the merger. I had warned the Chairman-cum-Managing Director and the Aviation Ministry of the consequences of introducing a single code without resolving issues first. But they never listened,” he told Mid-Day.


Third, Patel seemed to be batting for Air India’s rivals. He handed over lucrative routes to private players. Though Air India had no birthright to every lucrative route, Patel’s overnight manoeuvres in this regard suggested that he had a clear conflict of interest by being both Aviation Minister and board member in Air India.




A Tehelka report quotes Capt Mohan Ranganathan, an aviation expert, as saying that the airline handed over “flying rights on lucrative sectors in the Gulf to foreign airlines, including Etihad Airways, Qatar Airways, Air Asia, Singapore Airlines and several others…” One glaring instance of a sudden handover could not have come without Patel’s nod. Tehelka says that in October 2009, the airline sent “letters…to its stations in Kozhikode, Doha and Bahrain stating that it was withdrawing operations on the route” – a route in which the airline was making money hand over fist. Very soon, Jet and Etihad stepped in to fill the gaps, and so did Emirates.



Fourth, Praful Patel’s own airline preferences made it clear who he favoured. According to replies received under the Right to Information Act by one Jagjit Singh, Patel used mostly private airlines. Between June 1, 2009 and July 2, 2010, 26 of the 41 flights he took between Delhi and Mumbai were with Kingfisher. “It is intriguing that the minister who stresses the need for revival of the national carrier himself chooses to ignore it,” said Singh. And this happened just when the Finance Ministry was asking all government employees to use Air India for their official travel to help revive the carrier.




Patel’s haughty reply when asked about this preference of private airlines: “I am the Union Civil Aviation Minister and not the minister in charge for Air India. As a minister, it is not binding upon me to fly only one particular airline. I fly according to my convenience.” But when he ordered so many places for Air India, was he acting as Minister or superboss of the airline?



Fifth, Patel used his clout with Air India often for personal ends. Another RTI query showed that Patel’s kin used the Air India Managing Director’s office to regularly upgrade from economy to business class. Business class is a cost Patel’s family, which is rolling in wealth, can easily afford. So what does this say about Patel’s attitude to the airline?



But is the new Civil Aviation Minister going to reverse the rot set off by Patel?



According to a Financial Express report, the new turnaround plan does not look any more viable than the deadweight Patel cast on Air India by getting it to buy planes it could not afford. The newspaper quotes a Deloitte review of the SBI Caps revival plan which says it’s simply not viable.



Reason: Air India again wants to buy too many aircraft, just like Patel did. “Aviation consultancy Simat Helliesen & Eichner, which carried out a detailed route planning and capacity exercise, has suggested 87 narrow-body aircraft for Air India by 2015, but the carrier has proposed 143, according to Deloitte’s report dated February 11, 2011,” says the newspaper.



Deloitte’s comment: “The only justification that one can have for going in for such capacity expansion can, therefore, be the adoption of a strategy of buying market share through deploying high capacity into the market (with corresponding lower yields and consequent financial implications).”



This means Air India is planning to sink further into losses for years to come.



Over to you, Mr Ravi. Do you want to go down the same path Praful Patel pushed Air India?



The government’s best bet now is to cut its losses. Air India should be privatised or closed down.