Should Air India go private?

Given its mammoth debts, operational inefficiencies, often questioned employee

accountability levels, poor service and hospitability, intermittent strikes by employee
unions, added apprehension due to frequent accidents and plummeting customer
loyalty; should our flag national carrier, Air India, be privatized? This, admittedly, has
long been the only question in the minds of many people.

After the merger of Air India

with Indian Airlines, there
was a faint hope that the air
carrier would be revived to
life – because the huge
network and fleet size of
both the carriers combine
together making its presence
both in domestic and global
arenas. Sadly though, the
story has proven otherwise.
Air India has accumulated
Rs.13,300 crore losses since
its merger with Indian Airlines in 2007. Before the merger, the losses reported by the
two state-owned carriers were Rs.447.93 crore and Rs.240.93 crore, respectively – as told
in the Parliament by the aviation minister Mr.Vayalar Ravi in March 2011. The firm has
also taken Rs.40,000 crore long-term loans.

Until now, whatever have been the deeds of the airline to see itself in soup of losses,
huge costs and debts, the government of India has been backing it by infusing huge
funds into the airline – only to repeat the history. The situation never seemed positive
let alone promising. Knowing this jolly well, why is the government, by all means,
trying to keep the airline for itself, after all? According to me, the government has to
rely on some of its own firms to make regular earnings, apart from other sources like
taxes (unfortunately though, government has been feeding the airline to keep it alive!).
Is that all? Was that the reason why, the erstwhile Tata Airlines and other domestic
carriers around that time were all force nationalized to form state-owned carriers Air
India and Indian Airlines? The reason might be too broad for a normal citizen – like me
– to understand the original motive of the then national government. However, an
obvious intent of the government that stands out to me is that “every country should
have its own state-owned flag carrier”. I concur.

That doesn’t mean the firm can just be another government PSU, where employee jobs
are guaranteed regardless of their efficiency levels, or it can make losses – that too
beyond repair – in its operations, or it can long live with its rather infamous customer
service; because the its business periphery doesn’t just confine to India but fans out into
all corners of the world. The point I’m trying to drive home is that Air India is not just a
national air carrier; it carries our nation’s pride – which someone in near future might
give a serious frown at, considering the current state and future prospects of our public
airline – too. I wonder how many of us really prefer flying Air India, right now, given
an option!

Now with all this hullaballoo

happening around, is Air India
really not attempting to do some
repairing work? Surely, it is. For
instance, as reported by Air India
Ltd, it trimmed down its operating
loss by Rs.1,179 crore for the period
April 2010 to February 2011.
According to them, Air India
received 190 proposals from its
employees to cut costs and increase
revenue, including printing ads on boarding passes, fuel-saving measures and selling
holiday packages – meaning it is even involving its employees to fix the situation. The
“lean” thinking has gotten into every corner of operations, so much so that even the
thickness of the boarding passes has been reduced! Also, the seat occupancy factor and
average yield has gone up by 1.5% and 30 paisa.

Recent news is that, Air India would be undergoing financial restructuring, in that a
considerable chunk of short term debts would be converted into long term debts, the
result of which is that the national carrier’s annual debt repayment burden will come
down by around 42 per cent to Rs 700 crore from Rs 1,200 crore. Besides, there is also
news that the some part of the debt accumulated by the airline would be converted to
equity. Even so, I think it is not the balance sheet but the management culture where the
root of the problem lies with. Even if the restructuring exercise ends up taking out a
very large portion of debt from the airline, there is no guarantee that Air India will start
making money. All the efforts currently are concentrated on clearing off its debts and
becoming profitable seems only remotely possible at least in the near future. Now the
discussion again boils down to – privatizing the firm!

Rest of the things aside; will privatizing any public firm do any good? It definitely has
its own pros and cons – nonetheless considering the heat of the situation, the more
resounding choice of most of the people would be “privatize the airline”. So, in an
attempt to understand what “privatization” really means, I found these interesting and
relevant lines on a website.

Privatization can be an ideology (for those who oppose government and seek to reduce its size,
role, and costs, or for those who wish to encourage diversity, decentralization, and choice) or a
tool of government (for those who see the private sector as more efficient, more flexible, and
more innovative than the public sector) (Kamerman and Kahn, 1989; Gormley, 1991). Although
privatization in the most general sense involves a reduction in the role of government, the
process carries different implications depending on which function(s) of government are
assigned to the private sector: financing; production or delivery of services; and monitoring or
regulation (Kamerman and Kahn, 1989; LeGrand and Robinson, 1984).

Privatization may take many forms (Kamerman and Kahn, 1989; Gormley, 1994: Kettl, 1995),
including:
• Elimination of a public function and its reassignment to the private sector for financial
support as well as delivery (police, fire department, schools); opponents characterize this as
"load-shedding" (Bendick, 1989);
• Deregulation, that is, the elimination of government responsibility for setting standards and
rules concerning a good or service (Gormley, 1996 and 1997);
• asset sales, that is, the selling of a public asset (a city building, a sports stadium) to a private
firm;
• Vouchers, that is, government-provided or -financed cards or slips of paper that permit
private individuals to purchase a good or service from a private provider (food stamps) or a
circumscribed list of providers (Medicaid; a child care voucher);
• Franchising, that is, the establishment of a model by the public sector that is funded by a
government agency, but implemented by approved private providers; and
• Contracting, that is, government financing of services, choice of service provider, and
specification of various aspects of the services, laid out in a contract with a private-sector
organization that produces or delivers the services.

As I see it, the government doesn’t have to control the operations of the airline or
eliminate itself completely from the firm either. The airline can still be a public owned
enterprise with an effectiveness and efficiency of a private firm. How? Am I being too
optimistic by expecting that our government system in India would be functioning
ideally? No. If one goes through above forms of privatization, he/she can find the
answers – deregulation, franchising and contracting. A small SWOT analysis of the
airline would let us understand its actual standing.

Strengths:
1. Huge network
2. Largest fleet size in the country
3. Government backing
Opportunities:
1. Capitalizing on its strengths to gain
market share
2. Can represent “India” abroad in
terms of tradition and gain loyalty
of foreign nationals and NRIs.
Weaknesses:
1. Operational inefficiencies
2. Poor service
3. Employee unions
4. Low accountability
5. Huge financial crunch
Threats:
1. Huge number of private players
eating away market share.
2. Shrinking customer loyalty
3. Non cooperation from employees in
terms of strikes

Going back to basics, any individual or firm can always live on its strengths by
simultaneously working on its weaknesses to overcome threats and grab opportunities.
Same goes for Air India too. My submission on the topic “privatization of Air India”
would be this:

For managing the operations, private individuals have to be contracted with as
less government’s say in it as possible. There can be a government represented
panel or committee, however, to review the progress of contracted work. The
contractors – who should be veterans enough to know the industry in and out
and handle challenges pertaining to it – obviously have to be employed for top
management roles, thus bringing and percolating professionalism in the
organizational culture, improving accountability and imbibing competitive
 attitude among the employees. None should be in a mindset that Air India is a
government PSU.

Implement deregulation. For example, there can’t be any room for laid back
attitude with any employee at any level – after all, it is our money, the tax
payers’ money that has been pumped into the airline all these days. If employees
can go on strike with public money at stake, why give leeway to such
unacceptable behaviors? I’m not saying that the employees have to be sacked on
an account of their wrongdoings, but that they have to be reminded of their
responsibilities to exercise their duties properly which is why they are paid for.
Also the quality of service provided to valuable customers, can’t be set based on
the government standards.

The stake of the airline need not be sold to private firm(s). It can still be public
owned enterprise. The government can come up with a business model that
includes franchising. For example, maintenance of aircraft, ticketing services,
food services, hospitality, customer care etc. can be taken care of by franchises –
which can either perform these tasks with their own employees or with the
airline’s employees (after thoroughly trained to perform appropriately in a
corporate environment).

One can note that, nowhere did I mention that the firm has to be downsized, or the
government has to sell its stake in the firm. I only stated that, the operations have to
be managed by private individuals (call them contractors) and firms (call them
franchises), with deregulation in place; because, it is rather the problem of
orientation of the employees and management than their inefficiency or
ineffectiveness – for every resource available with them is in surplus except for the
output.

I only hope strongly that Air India someday would become synonymous to quality
service, professionalism, hospitality, care, satisfaction, respect, safety and would be
among the airlines that offer the best experience that customers would love to go
with. I believe that day would surely arrive, time will only tell us when!