So, when we call it privatisation, what we really mean is that the government is paying the buyer a huge cash incentive to take a white elephant off its hands. The only question to ask is the size of the payment accompanying the gift of the airline. Privatisation in the case of Air India means talking about the cost of offloading the company in order to avoid further costs in future.
Some rough numbers will tell us what is really at stake.
The size of the “dowry” payable to potential buyers – with due apologies to women who find the term dowry insensitive or offensive - will be anywhere between Rs 25,000-30,000 crore, less the assets of Air India that can be monetised before the sale. This is the amount of debt the government will have to take on its books before Air India can be privatised. The true cost of privatisation is thus an increase in public debt.
Among the assets that can theoretically be monetised are the Air India brand name (though this is debatable), the land and properties owned by Air India in various cities, including the landmark tower in Mumbai’s Nariman Point, its various landing slots and airport counters, and its code-sharing agreements with other airlines.
However, its liabilities include not only its debts, but a significant chunk of its employees. A panel under Justice DM Dharmadhikari, which went into the HR aspect
s of the Air India-Indian Airlines merger in 2012, called for a voluntary retirement scheme (VRS) for the airline’s then staff strength of over 28,000. The idea was to offer VRS to around 7,000 staff, so as to bring down the staff-to-aircraft ratio, which was probably among the worst in the world at that time. In India, while Indigo operates with around 110 employees per aircraft,
Air India had more than 262 at that time. Though this ratio has since been bought down to around 10
8 (with headcount down to just over 19,000 employees
), this was achieved by hiving off key manpower-intensive units like ground handling, engineering and MRO services. The VRS plan was abandoned in 2014 in favour of natural attrition, when the government balked at the idea of shelling out Rs 10,000 crore
to offer 5,000 employees a golden handshake.
The short point is this: since Air India’s employee numbers are being pared only slowly, and some of those retiring from vital positions will still need replacing, it is safe to assume that the airline still has more staff than required for an efficient operation. To arrive at the true ratio of staff to aircraft, we need to add back the staff hived off into the engineering and ground handling services units.
Encashing the other assets, land, property, etc, will also not be easy, for property sales need permissions from multiple authorities, including state governments, the airports authority, and various airports. This report in DNA notes
that despite efforts to raise money from property sales, practically nothing has been achieved.
The bottomline is this: to get Air India off its hands, the government may have to take nearly Rs 30,000 crore of debts on its books, minus the estimated value of properties that go along with the airline to whoever “buys” it.
A private party – unrestrained by ethics and the need to avoid corruption – will probably find it easier to get permissions for property sales than a government-run airline.
The larger truth is this: white elephants can never be sold or privatised. They can only be gifted – accompanied by other monetary inducements.
The author is the Editorial Director of Swarajya. Earlier editor at Firstpost & Forbes India. You can reach him at @TheJaggi
Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.