04/11/2023 10:44 PM Mandar Joshi

AIR-INDIA SHOULD BE PRIVATISED ?

Contents• Overview of aviation industry• History of air- India• Air- India before privatization• Air- India after privatization• Pros & cons of privatization• Financial crisis• Private airlines business in market• Path forward• summary

Overview of aviation industry• 1912: Indian State Air Service in collaboration

with Imperial Airways conducted first flight in India between Karachi and Delhi as an extension of London-Karachi flight.

• 1932: Tata Airlines, first Indian airline formed.• 1953: All airlines nationalized and

consolidated under Air Corporations Act 1953.• 1986: Air Taxi Scheme – Private companies

allowed non scheduled air transport.• 1994 – Liberalization policy – Air Corporation

Act 1953 repealed.

History of air- India• 1948: Air India International formed as a national carrier.• All airlines nationalized and consolidated under Air

Corporations Act 1953.– Indian Airlines Corporation (Domestic) – Air India International (Internationally) formed.

• In 2001, Air India was put up for sale.• Privatization of NACIL (Air India International & Indian

Airlines) was announced in 2001.• Air India serves 9 domestic destinations and 16

international destinations in 11 countries.– Together with its subsidiaries the group connects 93

destinations worldwide in 24 countries across Africa, Asia, Europe and North America.

Why liberalize?• To promote competition• To enhance economic efficiency• To facilitate trade and globalization• To protect consumers from anti-competitive

behaviour• To provide better quality goods and services at

lower costs• To generate employment and economic growth• To promote broad development objectives• To meet growing demand that incumbent

cannot meet• To reduce incumbent’s inefficiencies and to

make it competitive

Air- India before privatization• consumers are avoiding it, its service is terrible and its

employees are going on strike! Can it get worse?• As a matter of fact, it can. The worst case scenario

would be if the Government of India bails out the company using taxpayers' money. That would effectively tell the employees that they can continue their 'who cares?' attitude forever and continue to work in an inefficient, troublesome, uncompetitive manner, knowing full well that a big government package is just around the corner of any crisis in the future!

• Air India is not competitive because the Government owns it. Now, as the company grapples with the worst crisis in its history, there is only one solution: privatize.

Air- India after privatization• In 2007, the Government of India announced that Air

India would be merged with Indian Airlines. As part of the merger process, a new company called the National Aviation Company of India Limited (NACIL) was established, into which both Air India (along with Air India Express) and Indian Airlines (along with Alliance Air) will be merged.

• Once the merger is complete, the airline - which will continue to be called Air India - will continue to be headquartered in Mumbai.

• In July 2008, it was reported that Air India was seeking US$ 534 million in aid from the Indian government to cover its losses. In the wake of rising fuel prices, the airline decided to hike its air fare in June 2008.

Pros & cons of privatization• If the compensation policies of any Public sector

or Government organization is changed little bit, then it will motivate people to perform and reward those who have performed.

• Its not that only privatization alone could stopthe losses of Air-india. But if all entities become privatized the revenue of the government would be a little back.

• We can expect that, it could be improving the facilities, services provided to the customers & efficient workers and also proper advertisement.

pros• If Government of India wants to gain profit they

have to changed their policies right from its root.

• The Indian government's lack of commercial insight is hampering Air India's growth, “every decision goes through multiple channels in the Indian government and nothing ever happens”.

• selling part of the carrier to a foreign investor would subtract from the airline's fixed value, but in reality if the government does not relinquish control, "Air India's value could go to zero and it could simply be stampeded out of the market."

cons• Privatization can not be the only solution, It's not

like in govt. organizations have human employees while private sector is having supermen or advanced robots.

• If one single person as a ceo or group of 10 board members can do rectify the problem, then pvt is the solution. If AI operates as a PSU, our ministry ofaviation will have its own soft corner to some employees which will hinder the development.

• Privatization is the only one option to recover the losses, if so then why private airlines making losses year after year???

cons• Around 2006-07, the airlines began showing

signs of financial distress. The combined losses for Air India and Indian Airlines in 2006-07 were Rs 7.7 billion. After the merger of the airlines, this went up to Rs 72 billion by March 2009.

This was followed by restructuring plans which are still in progress.

• The talk of privatization of Air India reflects the negative mind set. What happened to the private airline - Jet Airways? Why are they making losses? Why were they unable to rein in on pilots strike?

Financial crisis• Around 2006-07, the airlines began showing signs

of financial distress. The combined losses for Air India and Indian Airlines in 2006-07 were Rs 7.7 billion. After the merger of the airlines, this went up to Rs 72 billion by March 2009. This was followed by restructuring plans which are still in progress. In July 2009, SBI Capital Markets Ltd was appointed to prepare a road map for the recovery of the airline.

The carrier cancelled the purchase of six Boeing 777-300ER in July 2009 and sold three Airbus A300 and one Boeing 747-300M in March 2009 for $ 18.75 million to survive the financial crunch.

Private airlines operating in market• Currently: Indian Airlines, Jet Airlines, Air

Deccan, GoAir, IndiGo, Kingfisher Airlines, Paramount Airways & SpiceJet.

Path forwardThings to Look Forward• Technology Vision 2020• Global airlines traffic to increase in lieu of the good

performance• Allowing of Private Participation & FDIs in construction

& maintenance of air traffic infrastructure• Air transport supports US$3 trillion of global economic

activity. That is 8% of global GDP and 29 million jobs

Challenges• Infrastructure• Avian Flu• Tackling the rise in Fuel Price• Waving of Tax Exemption on leasing from government

With the advent of LCC, other airlines too reducing theirprice significantly

• Costs pressures (ATF Prices & Staff Cost)

summary

• There is a need for a strong and independent regulatory body.

• The implementation of competition regime will help prevent anti-competitive issues arising because of government ownership.

• Privatization is essential for effective liberalization and therefore competition.

THANK YOU