Sunday, February 19, 2017

Pranab grounded UPA plan to privatise Air India.

The Hindu: Somesh Jha: New Delhi: Sunday, February 19, 2017.
The United Progress Alliance (UPA) government had finalised a plan to privatise Air India five years ago, but it did not take off as the then Finance Minister, Pranab Mukherjee, vetoed it.
Today, the ruling National Democratic Alliance (NDA) government is non-committal on privatising the debt-ridden airline.
The privatisation proposal came on October 28, 2011, when a Group of Ministers in the UPA government sat down to decide Air India’s fate and approve a bailout package for the carrier.Some Cabinet Ministers favoured the plan, based on recommendations made by a group of bureaucrats.
Beyond GoM’s mandate
Mr. Mukherjee as Finance Minister rejected the idea, on the ground that privatising Air India was beyond the mandate of the GoM, according to documents obtained under the Right to Information (RTI) Act and reviewed by The Hindu.
The October 2011 recommendations in the turnaround plan and financial restructuring plan were submitted by a group of officers of the Union Finance Ministry, after a spell of continuous losses.
“Once Air India is able to achieve an appropriate level of growth rate, divesting the airlines to a strategic partner could be considered,” the group said, in a recommendation to the GoM on Civil Aviation headed by Mr. Mukherjee in October 2011.

“Going by the Terms of Reference of the GoM, closing down or privatisation of Air India were not the options available,” Mr. Mukherjee said, accepting all recommendations other than the one on privatisation. The roadmap in the turnaround plan could be implemented, he said.
However, Petroleum Minister S. Jaipal Reddy differed, and said “the airline needs to confront reality,” suggesting that the privatisation option should be retained. “As regards privatisation of airline, while today there are no takers, some day a view must be taken that beyond a point it is no longer possible to support the airline further A hard view and harsh measures need to be taken to reform the airline and those should not exclude privatisation,” he said.
The Civil Aviation Minister at the time, Ajit Singh, felt that privatisation of Air India with its debt was no solution and the recommendations of the group of officials “must at least be given a fair trial and acted upon.”
P. Chidambaram, who was Home Minister, was not supportive of the turnaround plan. “The Home Minister commented that this analysis seemed to be under the assumption that the competitors would stand still. He expressed his regret and said that he was unable to support this TAP. According to him, the fundamental issues that needed to be addressed have not been dealt within this plan,” the minutes of the meeting in 2011 said.
Mr. Chidambaram felt that “the airline needed to rid itself of half its workforce”, if it was to compete with others.
Turning into NPA
The need for a revival plan in 2012 arose from the merger of Air India Limited and Indian Airlines Limited in 2007, after which the carrier suffered losses till 2010-11. The group of officers warned in 2011 that if a financial restructuring plan was not put in place, Air India would default by March 2012 and become a non-performing asset (NPA) to the banking sector.
“This might result in cross default clause being invoked internationally, which would create an immediate requirement for government to repay guaranteed aircraft loans. Since Air India is owned by the Government of India, any default would be akin to a sovereign default,” the Note for the Cabinet Committee on Economic Affairs dated March 2012 stated.
The CCEA later approved a plan to infuse ₹ 30,231 crore as equity into Air India till 2020-21.
Cut to the present: The Centre has already given ₹ 23,993 crore as equity support to Air India since 2011-12. The airline’s losses stood at ₹3,587 crore in 2015-16 compared to ₹5,859 crore. Air India, with a fleet of over 140 planes, has been missing its profitability targets (see chart) since the first year of equity infusion. Its market share has dropped and the airline recently shortlisted three consulting firms to finalise its strategy, including product development, brand management and raising market share.
Recently, Chief Economic Adviser Arvind Subramanian cited Air India’s example to highlight the government’s difficulty in privatising public sector enterprises. “Defying history, there is still the commitment to make the perennially unprofitable public sector airline ‘world class’,” the Economic Survey, 2017, said.
However, the NDA government has remained silent on the issue of privatising Air India, although in 1999-2004 the government favoured a stake sale in the national carrier.