It is best to start this article with
a piece of news from The Economic Times, for nothing
better explains the pathetic state of Air India. On
Monday, 7 November, India's largest flight caterer,
TajSATS, warned Air India that it would be put on
cash-and-carry from the very next day over unpaid
Airlines have often been threatened by oil companies
and airports due to their delayed payments for
aviation turbine fuel or airport fees. But this was
unique: of an inflight food supplier threatening
“Pay up, or else”. Clearly, nobody has faith in Air
India’s ability to pay its suppliers. The amount
owed was Rs.45 crore, of which Rs.30 crore was
beyond the usual credit period. Air India claimed
that it “promised to pay Rs.7-8 crore by next week
and a like amount next month” — thus averting the
risk of being put on cash-and-carry by TajSATS.
Air India is a national disaster. As of 31 March
2011, Air India had an operating loss of Rs.22,000
crore and a debt of Rs.42,570 crore; In the words of
T.V. Mohandas Pai, until recently an executive
director on the board of Infosys, it has “a clueless
management, an owner who just does not understand
how airlines are run, a fast deserting clientele and
30,000 hapless employees stuck in the middle”. And
it is seeking a mother of all bailouts, amounting to
some Rs.43,000 crore from the Government of India.
Not surprisingly, the learned ones of New Delhi who
constitute the policy-making heft of our land —
namely a Group of Ministers (GoM) led by Pranab
Mukherjee and including P. Chidambaram, S. Jaipal
Reddy, Montek Ahluwalia and aviation minister
Vayalar Ravi — are considering variations of such a
bail-out which, naturally, is called a ‘turnaround
Under this plan, the government will first put in
more than Rs.6,000 crore as equity. That is a
financially cute way of describing taxpayers’ money
that will never come back. It is just the beginning.
Some Rs.20,000 crore of debt will need to be recast,
which is short-hand for public sector banks to take
a massive hair cut on their Air India exposures.
Then there is some creative financials optics, such
as selling and leasing back 14 of the 27 Boeing
Dreamliner 787 aircrafts that were to join the fleet
by 2014 — so as to keep them off the balance sheet.
At a time when the financial world is shaking at the
fear of a Greek collapse engulfing Italy and the
rest of the Euro Zone, no thought has been given to
who will actually buy these expensive Dreamliners
and put them on their balance sheet for the express
privilege of leasing these to Air India. Such
details matter not.
Thankfully, the GoM has asked the Reserve Bank of
India (RBI) for its opinion. If the RBI is as
fiercely independent a guardian of the health of the
banking system as it seems to be on combating
inflation, the answer should be a clear “No”.
Why should the RBI agree with the GoM’s view that
the banks do a massive debt recast involving huge
cuts in interest payment as well as a long and
substantial moratorium on outstanding debt, when it
knows that the problems will re-surface yet again?
As it invariably will, because Air India does not
even cover variable costs. Even if St. Jude, the
patron saint of lost causes, got rid of Air India’s
interest burden on its existing debt, the airline
will not be able to earn a positive profit before
depreciation, interest, taxes and amortisation. It
is as simple as that.
Let us be honest. You cannot expect a bloated 30,000
strong workforce, long used to behaving like
protected public sector employees and striking at
the drop of a hat, to run an airlines that flies
uneconomic routes often with low passenger loads,
and yet earn operating profits. Today, the state of
Air India is worse than the sick industrial units
that were under the Board for Industrial and
Financial Reconstruction (BIFR) in the late 1980s
and early 1990s. The vast majority of the those
firms never recovered despite several rounds of
concessions being wrenched from banks and financial
institutions. More often than not, they had to be
liquidated. Frankly, that is the fate which ought to
befall Air India.
But of course it won’t. The GoM, the RBI and the
civil aviation ministry will ‘convince’ banks to
take yet another haircut for this wasteful behemoth.
Because nobody has the political guts to say,
“Enough is enough”. And because nobody will ask how
many abysmally poor rural households will be
deprived of their NREGA entitlement of Rs.120 per
day for 100 days a year on account of this Air India
bailout which, as we know, is destined to fail. Some
economics, this! Some politics, too!
Published: Business World, November 2011