The Redundant Maharaja

FINALLY A government has mustered the courage to get rid of the perennially loss-making Air India. On March 28th, the Union Government issued a preliminary information memorandum on the proposed sale of the national carrier.

The disinvestment has been in the works for a while. The Niti Aayog had engaged in an extensive debate on the carrier’s selloff. While there are plenty of naysayers who argue that the Government should not sell Air India, the case for its sale is pretty strong. For one, the company is sitting on a huge pile of debt—the latest estimates put it in excess of Rs 58,000 crore. This is a constant headache for any government. For another, the age of governments running ‘national carriers’ is long gone. It makes no sense why India should continue to bear the ideological burdens of a bygone age.

Like any other state-run enterprise, Air India is simply impossible to govern on sound economic and managerial principles. Its weak market share tells its own story. There was a time in the past decades when it was a monopoly carrier, with domestic air passengers at its mercy. Poor service—which continues even today in the time of fierce competition in the aviation sector—drove customers away. But that did not matter: the airline continued to have a captive market in government travellers from various departments and undertakings who are required to pick Air India as their first preference on official tours. Why then would it need to attract more customers? Ordinarily, that would be the end of a commercial enterprise. But Air India is not an ordinary company: like any state enterprise, it is subject to soft budget constraints instead of hard ones. In plain words, it can run to its owner whenever it runs out of money.

There is, to be sure, plenty that can go wrong in the proposed sale. Some deal breakers are already evident, including the plan to offload a huge chunk of its debt to the prospective buyer. Then, some of the prime real estate assets of the airline are not part of the deal. Finally, there is little clarity on what to do with the bloated and spoilt workforce of the airline. In sum, there are a number of formidable obstacles that need to be overcome. Hopefully, the Government will work out these problems before the selloff plan moves to the stage of qualified bidders taking a hard look at the Maharaja.

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