Why Should Air India Be Privatised?

Why Should Air India Be Privatised?

Why Should Air India Be Privatised?

There is a fresh move to turnaround ailing, loss-making Air India. The decision to merge Air India and Indian Airlines taken in 2007 gas not made Air Indian a strong viable carrier. Efforts of successive governments to infuse funds have not yielded desired results.

The Numbers….

Performance Indicators (Actual)Turnaround Targets
Passenger Load Factor: 72.5%71.5%
Network Yield: Rs. 4.19Rs. 3.64
Fleet Utilization: 5364
Cash Loss: INR 952.48 croreINR 1349 crore
EBITDA LossINR 473, 65 croreINR 63.57 crore
Actual Cash Loss: INR 3458 croreINR 3337 crore
OTP at metro airports: 89.2%90%

The debt is over INR 50 thousand cost and the huge cost of servicing the debt has wiped out the operating profit of Air India. As a result, the airlines has become a huge loss making carrier despite falling oil prices over the years.

1. Case for Privatisation Strong

There is a strong case for its privatisation. The equipment and planes are old and services are pretty bad, depending on the crew assigned to take you on flight. Flights are generally late and often unpleasant as air crafts are old.

2. The Market Share

The market share of Air India is barely 13% and most of its customers enjoy freebies. Politicians, government servants, travel by Air India. Those who have options hardly choose to travel by Air India. The carrier is not a popular choice.

3. Lots of Options

The government is considering various options such as disinvestment, sale of stakes to strategic partners etc. Privatisation will not trim the size of Air India and improve efficiency. It will also give a clear message that Indian economy is now market driven on principles of sound governance.

4. End of the Era of Controlled Economy

If privatisation takes place, it will mark an end to the era of centralised planning and controlled economy. It is an established principle of nationalisation that the government should only interfere when there is market failure. When JRD established Air India as a private carrier, there was hardly any business case for its nationalisation.

However, after nationalisation, the cost of employee per aircraft grew beyond reasonable expectations. At present, there are 221 employees per aircraft. To provide services, to tool several non viable routes. These operational costs were hidden in days of monopoly when there was lack of competition from other operators.

When Air India perceived competition, it failed to keep up and turned into an ailing giant. The only cure is privatisation.

The government’s attempts to infuse capital especially after 2007 have not yielded desired results. Certain dimensions like to acquire aircrafts on lease and surrender of profit making routes further added to its woes. Finally the government is of the view that Air India has no business being a PSU. Certainly, managing an airline should not be the business of the government.

Privatisation/disinvestment will be a step in the right direction to turn around Air India and release the government from the burden of servicing huge debts and using the funds more efficiently elsewhere.
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