For sale in India: one airline, in serious need of refurbishment

It used to be the jewel in the crown of India's state-owned enterprises but Air India is now shambolic, shabby — and deeply in debt

An Air India plane prepares to land at Indira Gandhi International airport in New Delhi on April 16, 2015. Altaf Qadri / AP

CHENNAI // As with many Indians, the first flight Devesh Agarwal ever took was on Air India. He remembers all the details: Bombay to Delhi, in May 1972, on a plane called the Emperor Ashoka.

He was eight years old, and he felt a fierce pride in his national airline. “To know what that feels like today, I think we’d have to go ask a Singaporean what they feel about Singapore Airlines,” said Mr Agarwal, who runs Bangalore Aviation, a blog that analyses the airline industry.

The decline of Air India since the 1970s has been precipitous. It has become unreliable and shambolic, its planes deteriorated, and its balance sheet went awry. In March, the state auditing agency discovered that Air India had understated its losses incurred between 2012 and 2015, and that the real losses during that period ran to roughly 227 billion rupees (Dh12.9bn) rather than the 163bn rupees it reported.

But the most pressing problem with state-owned Air India, Mr Agarwal said, was government interference, and specifically the tendency of politicians and high-ranking bureaucrats to treat it as their own private airline. “This is why there has been so much pressure on government after government to sell Air India, and this is also why government after government has resisted.”

Under prime minister Narendra Modi, however, the sale of Air India — its 118 aircraft and close to 21,000 employees, its buildings and infrastructure, its debt burden of 520 billion rupees — is finally under way.

On June 28, Mr Modi’s cabinet formally approved the privatisation of the airline. Arun Jaitley, India’s finance minister and the head of a group that is managing the process, said the sale will progress “quite fast”.

A return to private hands will complete the circle in the airline’s history. Air India began as a private enterprise in 1932, when the industrialist J R D Tata founded Tata Aviation Services. After the Second World War, Mr Tata renamed the company Air India.

He did not hang on to it for long. In 1953, the government of independent India was intent on nationalising what it saw as essential services, and coerced Mr Tata into selling Air India.

For Mr Tata, an aviation nut, it was a distressing decision. “I was upset by the manner in which nationalisation was introduced through the back door without any prior consultation of any kind with the industry,” he wrote to a colleague. “However, we have to reconcile ourselves to the fact that we are living in a political and bureaucratic age in which people like ourselves no longer count for much in the scheme of things.”

The thought of that “political and bureaucratic age” persisting, with the government possibly retaining just enough of a stake in the airline to continue interfering in its operations, will give buyers pause.

Government interference in Air India has included the appointment of political cronies to management positions, planes being delayed by politicians arriving late and an insistence on preferential treatment.

In March, a member of parliament assaulted an Air India official, whose crime was to inform the MP that he could not have a business class seat because the flight was all economy class. Although the politician was temporarily blacklisted by Air India and other private airlines, he was allowed to fly again after two weeks.

In his book The Descent of Air India, the airline's former executive director Jitender Bhargava recalled "an environment vitiated by personal ambitions and interests overriding those of the airline".

Unions also paralysed the airline’s operations. “This began affecting employee morale and made them believe that the union leaders, rather than the department or the airline, were controlling their lives and careers,” Mr Bhargava wrote.

Whoever buys Air India will inherit the problematic unions. Another prime hurdle is the airline’s enormous debt. The government might absorb part or all of it to make the sale viable.

But there is also much to attract buyers.

Among Air India’s best assets are its routes. “Air India gets first preference whenever bilateral negotiations about airline routes are conducted between India and other countries. Air India is hard-coded into these agreements,” Mr Agarwal said.

All those pre-negotiated routes would transfer to the new owner, in an instant expansion to existing business.

Air India also owns or leases committed landing slots in many airports in India and overseas, and its market share is certainly worth having. Air India flew 2.4 million passengers to and from India between January and March, more than any other airline. Its share of a booming domestic market hovers around 13 per cent.

Selling Air India would mark a watershed in the evolution of the Indian state, which until the 1990s believed in owning services and enterprises rather than permitting the private sector to provide them.

“I’m nostalgic for the glory days of Air India, of course,” Mr Agarwal said. “But it started suffering a downfall when it stopped focusing on excellence. Now it needs to be taken out of the government’s hands.”