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DWalk into the Mumbai office of Air India Limited in early 2001, and you might have seen an elderly, white-jacketed man turning off the clock. With 17,400 employees and just 24 aircraft – three times the staffing level at major US airlines – silly tasks like timekeeping at headquarters had become one’s job description.
Still, optimism was in the air then. India was about to shed half a century of accumulated lethargy, with demand to sell its national carrier. And yet, the privatization plan collapsed, and it took another 20 years and billions of dollars of wasted capital to be reinvested. Finally, when the global travel industry has been ravaged by a pandemic, Prime Minister Narendra Modi has managed to let Air India go.
Two decades ago, the airline was valued at $4 billion by the pilots’ union. In comparison, the winning bid of 180 billion rupees ($2.4 billion) by the Tata group – from which Air India was snatched away by the socialist-minded government in 1953 – is a modest one. In addition, New Delhi will have only 15% of the consideration in the form of cash payment. The remaining debt will be taken over by the new owner, a Mumbai-based conglomerate that also controls Jaguar Land Rover and runs India’s largest computer-software firm. Even after the deal, $6.2 billion in borrowings will be left behind and become a clear liability of the state.
Yet the transaction makes sense. Selling Air India was not just about income. The carrier was the epitome of all that can go wrong when a state lacking the ability to deliver basic services such as health and education begins to compete in the commercial sector. Modi’s indolent goodbye to the Maharaja – the airline’s mascot – will bolster his government’s reform credentials at a time when the economic recovery from Covid-19 is still tentative and uneven. With the future of global travel shrouded in uncertainty, knowing that taxpayers won’t have to come to the airline’s rescue is a boon to government finances.
In 1953, a newly independent India made a big mistake by nationalizing Tata Airlines Limited, which managed to create a culture of customer service, something that disappeared – with an ashtray designed by Salvador Dali – of late. Monotonous socialism in the 1960s. The carrier became a haven for entitled employees, dancing to the tune of bureaucrats and politicians.
Air India has always had valuable parking slots at airports such as Heathrow and bilateral flight rights. But he didn’t have planes to fly the routes. By the late 1990s, it had become clear that the government could not continue to bear the burden. But intense lobbying by Jet Airways India Limited, the largest private sector carrier in the Indian skies at the time, scuttled the 2001 privatization plan, defeating the more efficient competitor that might have emerged. The then aviation minister bragged for not letting a single nail of Air India out of state control. Then, reversing the decision to sell, a new government decided to tie up Air India with a $10.8 billion fleet expansion and an un-advised merger with Indian Airlines, the domestic state-owned carrier. The profit disappeared forever. Debt piled up.
Now that Jet Airways is bankrupt and the Tata Group has gotten back what it has achieved, the question is: What will they do with the three airlines in their stable? Tata has a joint venture with Vistara, Singapore Airlines Limited for full-service domestic and international flights. He also has a majority stake in Malaysian entrepreneur Tony Fernandes’ no-frills carrier with Air Asia Group. Consolidation is the way forward, with Singapore Airlines probably to be relied on for operational information and Fernandes exited.
Will the Maharaja be able to restore his former glory? The answer matters to Ratan Tata, whose lifelong love affair with planes hasn’t turned into much commercial success with Vistara and AirAsia India. Now, for his 84th birthday in December, the group’s vice-chancellor is getting 13,500 full-time and contractual employees of Air India and the low-cost service that operates in the Middle East. With them will come the culture of a defeated public sector organization.
It won’t be an easy integration, but it’s a buyer’s headache. Indian taxpayers should get relief to cut their losses. International investors should be thrilled to receive the deal they have always equated with a clear indication that India wants less government in commerce. It can be worth a lot that low sticker price for the airline. –bloomberg
Read also: Tata finally set to acquire Air India, will boost Modi government’s privatization plan
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