Grounding Air India

The Union finance ministry has refused to give Rs 300 billion of taxpayers’ money to the state-owned airline, Air India (AI). The Union ministry for civil aviation had apparently asked for the help as AI has once again found that its humongous debt burden is getting in the way of its regular operation, such as the payment of employees and vendors. The finance ministry has complained that there is still no coherent plan to revive AI and make it sustainable — which means that sinking yet more hundreds of billions of rupees into the airline would not help. This is a welcome realisation — and even if it comes because of the political calculation that it would not look good to be bailing out an airline in an election year when there are so many calls on the government’s purse, it is nevertheless a decision that should be followed up on. The era of easy budget constraints for AI must come to a close.

It is true that this might make it harder to privatise AI. Getting the entirety of the airline off the state’s books is indeed the first-best solution. Yet that appears, as of now, to be politically infeasible. There is no question that the government botched its attempt to privatise AI earlier this year. The conditions attached to the sale were too onerous for any bidders. For example, no purchaser would have been allowed to merge AI into their own operations to take advantage of any possible synergies — which naturally made it very unattractive for other airlines. Conditions were also placed on the firing of employees and the government sought to retain a certain amount of control. Taken together, this suggested that the government’s privatisation efforts were not serious. There was then some hope that AI would be subjected to the normal insolvency and bankruptcy process, given its cavalier treatment of some of its creditors. However, there has been no movement on that front either. Yet, once again, AI is suffering in the marketplace of reputation. Last week, it was forced to deny viral rumours that it was shutting down operations. It is very difficult for an airline to operate under these conditions, let alone one as hamstrung by state requirements as AI is.

It is to be hoped that the finance ministry’s refusal to disburse additional funds to AI will push the civil aviation ministry and the airline into serious consideration of where it can raise funds internally. Air India controls considerable real estate, and the finance ministry has suggested this be monetised. In fact, much of this should be sold to draw down debt. It also should be able to spin off some of its ground operations, which are already controlled by subsidiary companies. In the absence of any real political will to deal with the AI problem, this might be the best route out — that is, to keep on spinning off those parts of AI that still have some value in order to draw down its debt, and allow what remains to stagnate and wither without any further fund infusion from the government.