Air India privatisation | The emperor’s new minder
Like most people of my generation, I was familiar with Air India’s Maharajah mascot before I knew what Air India was. Back then—this was the 1970s—Maharajah stickers and dolls were common in most middle class homes, even those where air travel was considered a luxury. Years later, I met an advertising man who had worked on the account who told me the three rules that Bobby Kooka, who along with Umesh Rao, created the mascot, laid down for the Maharajah: eyes always closed, head always covered, and feet always off the ground (or not shown at all).
It’s a rule the mascot adhered to largely, across posters and ads created by Hindustan Thompson Associates (now JWT India), the agency that handled the Air India account for many years. The 1970s, 1980s, even the early 1990s were Air India’s golden years. Between 1991 and 1994, it was headed by Y.C. Deveshwar, specially requisitioned from ITC Ltd by the then government, and made a record profit of Rs333 crore in 1992-93. Through those years, the airline remained profitable. And through those years, its service standards remained uniformly high.
The government has been running Air India since 1953, although the airline was founded as a unit of Tata Sons Ltd in 1932. Its name was changed to Air India in 1946. After India’s independence, the government acquired a 49% stake in the airline. In 1953, it passed the Air Corporations Act and acquired a majority stake in Air India. At the same time (and under the same law), it set up Indian Airlines. Air India, it was decided, would fly international routes and Indian Airlines, domestic and regional ones (to neighbouring countries). Most people have forgotten that Air India wasn’t the only airline in India at the time of independence. There were seven others, and all of these, including Deccan Airways, a joint venture of the state of Hyderabad (run by the Nizam) and Tata Airlines, and Kalinga Airlines (founded by pilot-who-would-turn-politician Biju Patnaik) were merged with Indian Airlines in 1953.
The downfall of the two airlines probably started in the mid-1990s, as private airlines took their first fledgling steps, but accelerated in the 2000s. An ill-advised merger of the two in 2007 didn’t help. Over the past two decades, the government of the day has made several efforts to revive the airline, but to no avail. There has been one serious attempt over the past three decades in privatising the airline—under the previous National Democratic Alliance (NDA) government in 2000-01. A mix of political tentativeness, bureaucratic red tape, and smart lobbying by rivals put paid to that, though.
Now, the current NDA government has embarked on another attempt to privatise the airline. Air India has around Rs52,000 crore of debt on its books, and at least seven unions, but it also has the biggest fleet of long-haul planes in the country (140). It flies to 41 international destinations, and 72 Indian ones, and has valuable so-called bilaterals (agreements signed by two countries allowing commercial air services between them). Air India hasn’t used many of its bilaterals (and has given some away for next to nothing), but as a state-owned airline, it retains the primary right on such bilaterals. It has a massive ground handling and airport services infrastructure. And it also has vast land holdings.
That means the airline has a lot going for it, and also a lot not going for it.
If the government is serious about privatizing Air India, it should write off most of the airline’s debt. It should also spin off and retain control of the land holdings (if India’s limited track record of divestment is any indication, land holdings are a minefield). And it should take care of the unions. These three steps would allow a fair and accurate valuation of the airline.
Asia, especially India and China, is expected to drive the growth of the global aviation business over the next 20 years, Airbus said in its recently released Global Markets Forecast. Asia will account for 41% of the almost 35,000 commercial aircraft (each with a capacity of at least 100 passengers) between 2017 and 2036. Anyone buying into Air India will be buying into this market.
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