After 68 years, Air India is all set to return to the Tata fold.

What is the deal?

• The Tatas will own 100% stake in Air India, as also 100% in its international low-cost arm Air India Express and 50% in the ground handling joint venture, Air India SATS.
• Apart from 141 planes and access to a network of 173 destinations including 55 international ones, Tatas will also have the ownership of iconic brands like Air India, Indian Airlines and the Maharajah.

History of Air India

• Prominent industrialist JRD Tata founded the airline in 1932 and named it Tata Airlines.
• As India gained Independence, the government bought 49% stake in AI.
• In 1946, the aviation division of Tata Sons was listed as Air India, and in 1948, the Air India International was launched with flights to Europe.
• In 1953, Air India was nationalised and for the next over four decades it remained the prized possession for India controlling the majority of the domestic airspace.

Why was Air India sold?

• End of Monopoly: With economic liberalisation and the growing presence of private players, this dominance came under serious threat.
• Govt running an airline: Ideologically too, the government running an airline did not quite gel with the mantra of liberalisation.
• Continuous losses: By 2007, AI (which flew international flights) was merged with the domestic carrier, Indian Airlines, to reduce losses.
• Wastage of taxpayers money: But it is the mark of how poorly the airline was run that it has never made a profit since 2007.

Why wasn’t it sold earlier?

Ans. Fear over Operational Freedom

• The first attempt to reduce the government’s stake — disinvestment — was made in 2001 under the then NDA government.
• But that attempt — to sell 40% stake — failed.
• In 2018, the government made another attempt to sell the government stake — this time, 76%. But it did not elicit even a single response.
• In the latest attempt started in January 2020, the government has been able to finally conclude the sale.

So how was it managed this time?

• Govt gives up stakes: The mere fact that the government retained a partial stake. In other words, as long as the government kept a certain shareholding of AI, private players did not seem interested.
• Operational freedom: That’s because the mere idea of government ownership, even if it was as little as 24%, made private firms wonder if they would have the operational freedom needed.
• Debt sharing: In the past, the government expected the bidders to pick up a certain amount of the debt. This time, the government let the bidders decide the amount of debt they wanted to pick up.

Significance of the deal

[A] From the government’s perspective: A success

• Disinvestment: It underscores govt commitment to reducing the its role in the economy.
• Easing burden on taxpayers: This claims to have saved taxpayers from paying for daily losses of AI.
• Economic reforms: Given the historical difficulties in AI’s disinvestment, or any disinvestment at all this is a significant achievement.

[B] Business perspective: Still a failure

• Missing the target: Purely in terms of money, the deal does not result in as big a step towards achieving the government’s disinvestment target of the current year.
• Unresolved bankruptcy: The assets left with the government, such as buildings, etc., will likely generate Rs 14,718 crore. But that will still leave the government with a debt of Rs 28,844 crore to pay back.

[C] Value perspective: Success for Tatas

• Business success: From the Tatas’ perspective, apart from the emotional aspect of regaining control of an airline that they started, AI’s acquisition is a long-term bet.
• Investment boost: The Tatas are expected to invest far more than what they have paid the government if this bet is to work for them.

Conclusion

• Complete liberalization: The privatisation of Air India is a message from the Government to the markets and global investors that it has the political will to bite the reform bullet.
• Roadmap for economic reforms: The govt had to shed the “over-conservatism” that is typical of bureaucracy.
• Future disinvestments: A transaction as “tough and complex” as Air India’s in an open, transparent and competitive bidding process, will boost future privatisation.

Way forward

• Other loss-making PSUs continue to drain taxpayers’ hard-earned money and get abused and fleeced in the name of social welfare.
• The govt should imbibe this experience gained in future disinvestment biddings.

UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now