Air India Disinvestment Story, entering the concluding stage (GS 3, Economics, The Indian Express,The Hindu)

Context: Air India (AI) the National carrier, owned by Air India Ltd, a government-owned company was facing huge losses for a long. These losses were being absorbed by the government and for that funds were given to AI out of the government budget. This was ultimately seen as a burden on the exchequer. To move out of this problem government decided to sell 100% share of AI to the private sector, which is generally referred as Disinvestment or Privatization.

Story with important time line

  • Air India was started by JRD Tata before Independence in 1932 as  Tata Airlines, a division of Tata Sons Ltd. (now Tata Group). 
  • The airline launched its first domestic flight from Bombay to Trivandrum with a six-seater Miles Merlin. During the Second World War, the airline helped the Royal Air Force with troop movements, shipping of supplies, rescue of refugees and maintenance of aircraft.
  • Air India also operates flights to domestic and Asian destinations through its subsidiaries Alliance Air and Air India Express.
  • Air India’s mascot is the Maharajah (Emperor) and the logo consists of a flying swan with the wheel of Konark inside it. 
  • Nationalisation – The Government of India in 1953 passed the Air Corporations Act and purchased a majority stake in the carrier from Tata Sons though its founder J. R. D. Tata would continue as Chairman till 1977. The company was renamed as Air India International Limited and the domestic services were transferred to Indian Airlines as a part of a restructuring. 
  • In 2000, Air India introduced services to Shanghai, China. The Ministry of Civil Aviation charged Michael Mascarenhas, the then-managing director, with corruption. According to the ministry reports, the airline lost approximately ₹570 million (US$8.0 million) because of extra commissions that Mascarenhas sanctioned and he was later suspended from the airline.
  • Until 2007, Air India mainly operated on international long-haul routes while Indian Airlines operated on domestic and international short-haul routes.
  • In 2007, Air India and Indian Airlines were merged under Air India Ltd. Air India has been in losses ever since its merger with domestic operator Indian Airlines in 2007.
  • The combined losses for Air India and Indian Airlines in 2006–07 were ₹7.7 billion (US$110 million) and after the merger, it went up to ₹72 billion (US$1.0 billion) by March 2009.
  • In July 2009, the State Bank of India was appointed to prepare a road map for the recovery of the airline.
  •  By March 2011, Air India had accumulated a debt of ₹426 billion (US$6.0 billion) and an operating loss of ₹220 billion (US$3.1 billion), and was seeking ₹429 billion (US$6.0 billion) from the government.
  • The government pumped ₹32 billion (US$450 million) into Air India in March 2012
  • In 2012, a study commissioned by the Corporate Affairs Ministry recommended that Air India should be partly privatized.
  • In May 2012, the airline was fined $80,000 by the US Transportation Department for failing to post customer service and tarmac delay contingency plans on its website and adequately inform passengers about its optional fees.
  • In 2013, the then-Civil Aviation Minister Ajit Singh stated privatisation was the key to the airline’s survival. However, the opposition led by the BJP and the CPI(M) slammed the government.
  • Air India Limited split its engineering and cargo businesses into two separate subsidiaries, Air India Engineering Services Limited (AIESL) and Air India Transport Services Limited (AITSL) in 2013.
  • For FY 2014–15, its revenue, operating loss, and net loss were ₹198 billion (US$2.8 billion), ₹2.171 billion (US$30 million), and ₹5.41 billion (US$76 million).
  • On 28 June 2017, the Government approved the privatization of Air India.
  • Having failed on previous occasions to sell the airline, the Government decided in late 2019 to sell 100% shares of both Air India and its budget carrier Air India Express as well as 50% shares of AISATS. But, soon after the government opened invited bids, the Covid19 crisis had hit and the process had got delayed.

NEWS: 

  • Air India’s disinvestment process has moved into the final stages, with Tata Sons and SpiceJet promoter having submitted their final bids to acquire 100% stake in the national airline.
  • As per the EoI floated by DIPAM in January 2020, Air India’s total debt was Rs 60,074 crore as of March 31, 2019. The debt that is not absorbed by the investor would be transferred to Air India Assets Holding Ltd, a special purpose vehicle.

What is ahead:-

  • Industry sources believe that if the Tata Group manages to bring Air India under its umbrella again, it could consolidate its airline operations.
  • The airline’s divestment is expected to give the successful bidder control of 4,400 domestic and 1,800 international landing and parking slots at domestic airports, and 900 slots at airports overseas.
  • The funds of the central government which were being given to AI to manage the losses and deferred the debt, could be now better utilized in achieving other social objectives.
  • It is to see whether AI after coming in private hands will earn the profit and provide economical services of a good standard at the same time, hopefully, it will.

Md Layeeque Azam, Economics Faculty

Plutus IAS Daily Current Affairs 17th September 2021