Calcutta Notebook


India’s National Carrier ‘Air India’ has shown remarkable improvement in its financial fortunes lately. It has made an operating profit after many years. This welcome development appears to be due to fortuitous circumstance of a committed official taking reins of the Company. Such fortuitous circumstances are rarely sustainable, however.

The Government has invested Rs 16k crore in the Company in the last four years; yet there is no end to its losses. This amount is equal to a tax of Rs 500 per family. This money has been extracted from every family to keep Air India afloat.

One reason of the losses is alleged overcrowding. Large number of private airlines have entered the market but there is not enough demand for their services. The most inefficient among them have to close down per force. This is the natural process of the market which has led to the closure of Kingfisher. The impending entry of Air Asia, however, indicates that the market is not truly overcrowded.

The immediate cause of the plight of Air India appears to be the ill-planned merger of Indian Airlines and Air India in 2007. The two companies had different characters like tea and coconut water. Indian Airlines was operating on short routes with smaller aircraft. Air India was operating on longer routes with bigger aircraft. Pay packets of pilots was higher in Air India. This became a problem after the merger. Pilots coming from Indian Airlines sought parity with those coming from Air India. This was not sorted out speedily leading to much dissatisfaction. Moreover, the combined entity has become unwieldy to manage.

In reality these are superficial reasons of Air India's decline. The real reason for the losses is the intrinsic nature of government and its employees. They are loath to work. The banks were nationalized in the sixties. People told this writer that the culture changed overnight. Till yesterday the bank workers were courteous and working hard. They became rude and easygoing on the very next day of nationalization. They knew that it is no longer necessary to work and it is virtually impossible for them to be dismissed. This government culture is the fundamental problem of Air India. It is told that flights take off when the pilots wake up and reach the airport. The flight follows the waking time of the pilot; not the other way around. Delay of one flight in the morning sets in motion delays of all the connected flights. Major decisions to be taken by Air India management have to be vetted by the Secretary to the Government. Reportedly the decision to phase out old dilapidated aircraft and to induct new ones was delayed much because the Ministry could not make up its mind. Such delays can be devastating for a business. The utilization of aircraft is also less. A report by CAPA Center for Aviation says that only 100 out of 127 aircraft were being used by Air India. The daily flight time was also less compared with Industry average. These problems are rooted in the very nature of government servants. It appears that the present Managing Director has sorted out some of these problems leading to the turnaround. But this will not help much. A cancer patient may go for a walk when the weather is nice. That does not mean that he has been cured. Similar is the situation of Air India. The induction of a determined official as Managing Director has provided a short golden window which has enabled Air India to show some improvement.

The National Airlines of other countries are suffering a similar fate. According to one report, Air France of France, Alitalia of Italy, Sabena of Belgium, Olympic of Greece and Iberia of Spain have all been bailed out by their governments to keep them afloat. JAL of Japan had gone bankrupt in 2009. It has been resurrected in a lean and slim shape after a big reduction in manpower. State-owned national carriers simply cannot face the intense global competition in the sector.

Why are other Public Sector Undertakings successful then? It is because these are mainly monopolies or they get indirect financial assistance from the government.

The Vajpayee Government had embarked on a policy of privatization. The UPA Government has turned that policy on its head. It has embarked on a policy of disinvestment instead of privatization. A portion of the shares of the Company are sold to investors. Control remains with the Ministers and Secretaries. Additionally they get to spend the monies received from disinvestment. Objective of reforms was to make the government lean and thin. The government must not tax the people to keep Air India afloat.

Vol. 46, No. 24, Dec 22 -28, 2013

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