Don’t fly into the same storm: 

Don’t fly into the same storm: 

Context: Air India’s disinvestment, first attempted by the Atal Bihari Vajpayee government, is being revived.

Introduction:

• The sale bid the last time was a flop, shelved prematurely after all the bidders were either disqualified or dropped out.
• In May 2000, bids were invited for a 40 per cent stake in Air India, with a cap of 26 % on foreign investment.
• 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, in a government controlled set up, was bleeding Air India.
• The sale’s stated purpose was to bring on board a strategic partner who would turn around Air India. 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.

Description:

• A Delhi based chamber of commerce wrote to the Prime Minister lobbying against foreign investors being allowed to acquire more than 25 per cent stake in Air India, as this was the rule in U.S, China, Thailand and Mexico.
• Under Indian law, investors owning fewer than 26 per cent shares cannot move special resolutions, a restriction that did not apply in the countries the letter cited.
• After the sale was scrapped, private airlines flourished.
• Although Air India’s fleet which includes its subsidiaries has now grown to around 150 aircraft, it has lost traffic and market leadership to competition.
• The contest was down to two bidder- the Hinduja group and the Singapore Airlines-Tata joint venture.
• Both were invited to inspect Air India’s book.

Present situation:

• 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.
• Competition in the air travel market will not increase if Air India gets acquired by a private airline in India.

Conclusion: The rules should provide foreign airlines 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 India of the ills of public ownership. The government will have to exit the airline clearly and completely.