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Today’s Talk on Editorials for UPSC July 13

Don’t fly into the same storm – Air India’s disinvestment

 

  • Air India’s disinvestment is being revived. The sale bid the last time was a flop, shelved prematurely after all the bidders were either disqualified or dropped out. The many factors that were and may still be at work against the sale unless overcome, they may again endanger the sale.
  • The airline had reported losses for six straight years, had $70 million debt on its books and was fast losing traffic. More than 18,000 workers were on its rolls for a fleet of just about two dozen planes. Its employee-aircraft ratio, 750, was among the worst. Singapore Airlines, in contrast, had 91 employees per aircraft. Inefficiency, typical in a government-controlled setup, was bleeding Air India.

 

Doomed from start

  • The sale’s stated purpose was to bring on board a strategic partner who would turn around Air India. But the sale’s rules were loaded against candidates with a proven track record — foreign airlines. Lufthansa, Swissair, Emirates, British Airways and Air France-Delta in combination were among those to have expressed interest formally in buying the stake.
  • However, a bidding rule that required foreign airlines to team up with a local partner forced them to opt out. Singapore Airlines, which had also expressed interest formally, roped in the Tatas to proceed with its bid.
  • Those who remained in the fray had their expressions of interest evaluated; those ineligible were disqualified. In the end, the contest was down to two bidders — the Hinduja group and the Singapore Airlines-Tata joint venture.
  • The Hindujas’ bid was already under fire from the Opposition over allegations related to the Bofors arms scandal. The government barred the Hindujas from pursuing its bid, leaving a sole bidder: The Singapore Airlines-Tatas combine.
  • Private airline owners who had so far orchestrated resistance to the sale from the background, now openly pointed out that the majority stakeholder in Singapore Airlines was a foreign government. The unmasked attack made Singapore Airlines pull out.
  • The then Disinvestment Minister, Arun Shourie, clarified that the Tata group, Air India’s erstwhile owner before its nationalisation in 1953, could proceed with its bid without a partner. But the Tatas too withdrew, forcing the government to abort the disinvestment.

 

A level playing field

  • If the mistakes of the past are a guide, the sale’s purpose should guide the sale’s rules.
  • Air India’s debt, now about $8 billion, is growing unsustainably. It was bailed out with $5.8 billion of taxpayer money in 2012. The sale’s purpose should be to compensate taxpayers for shouldering the burden of keeping the national carrier afloat.
  • Air India’s disinvestment could deliver this if it results in reduced government interference and increased competition. Remember, most taxpayers are also flyers.
  • Competition in the air travel market will not increase if Air India gets acquired by a private airline in India. The rules should provide foreign airlines with a level playing field. Sharp scrutiny of objections can expose and thwart hidden vested interests.
  • Selling only a part of the government’s holding will not free Air India of the ills of public ownership. The government will have to exit the airline cleanly and completely.
  • The reform demands political courage, economic wisdom and business-like shrewdness.