So let me begin by telling you a small story. There was once a businessman who started his business by borrowing money from a public bank under a government scheme. However his business did not take off. He owned only a small house, had no discipline in business or in his personal life, and in few years had accumulated a huge debt. But owing to some unknown reasons, he could keep on obtaining loans from various government programs to continue his failed business. After a certain point in time when revival seemed impossible, the government said to the man that now it would ask other banks to give him money and when his debt would be considerably decreased, it would make his business a public business where people can buy stocks and thus his business would be back on track.
As much as illogical, ridiculous, baseless, even funny the above story might appear, the case cited is true and if you are wondering, the businessman mentioned is Air India and the government is the Indian government. A recent proposal to list the ailing carrier after making banks as investors has come as another idea in the series of many to revive Air India. With about Rs 50,000 crores as debt, there is no way anyone would be interested to pour money into a company whose equity would be a big zero or in negative. If anything, Air India needs to be shut down.
Let it be made clear that a government should have no business to be in the business of flying. Air India has become that noose in the neck which the Indian government is finding hard to take off. Thousands of crores of taxpayers money has been pumped into this bottomless pit yet no change in fortune has been in sight over many years.
The poor valuation of Air India and the humongous debt makes it untouchable in terms of simple business rules as far as listing is concerned. Unless it becomes yet another objective of demonetization to wave off 50,000 crore debt from the ‘windfall’ that government will make, there will not be any takers (or if there are, it will be very interesting to observe who) of this listing scheme. Without any plan to change the management, operation, governance of Air India converting this debt to equity is nothing more than a day dream.
4000 crore, an amount that exceeds budgetary allocation of many important sectors is just the interest debt that the Maharaja pays each year. This sheer wastage of resources needs to be stopped. The naysayers would cite the small operating profit (100 crores) that Air India made in FY16-17 to talk of turnaround but it is just a result of lower oil prices during this period. To put it in perspective in the same period, Jet airways made a profit of nearly 1200 crores.
The argument that is sometimes provided in favour of governments owning fleets is that in times of crisis like war it would be useful. This is not a strong argument since, as an example, simply tweaking of existing regulation would easily give government enough carriers from the private sector in times of need. It is time that this government undoes the folly that previous governments have made, not just by talking about them, and sells off the assets of Air India, be it the fleet or the premium property it has all over India, and makes some correction to the huge debt.
In the story that I began with, ideally what should have happened is when the government found that the businessman failed and ran a huge debt, it should have either asked for change in way the business was conducted or after a certain point in time sold off whatever assets the man had to pay for the debt. Air India is governments own business and the certain point in time have long been arrived. The only option is the latter one.