Fall Of The Maharaja

Fall Of The Maharaja

  • Reading time:5 mins read

By Tanisha Jain

The national air carrier of India has been bearing the brunt of jokes for some time now. Be it for delayed flights, stale food or the age of its crew. But it was not always like this. Tata Airlines, as the name suggests, was founded by the J.R.D. Tata in 1932. However, after World War II, the airline was nationalised and renamed Air India.

During the 2000’s airlines all over the world were incurring losses. The operating expenses of running an airline were too high, especially on a long international route. For Indian Airlines, operating on only domestic routes, the operational costs were quite lower than Air India which mainly operated on international long-haul routes. This was due to the lesser fuel cost and no inconvenience of complying with foreign laws. Additionally, the company owned all the resources it needed. However, it was not all roses. Indian Airlines faced heavy competition in the market when several low-cost airlines like SpiceJet, IndiGo and GoAir sprang up after 2000 introducing their low-cost packages around the Indian peninsula. Their biggest competitor was Kingfisher Airlines which introduced high luxury services at lower cost and had taken up a large chunk of the market share. To compete with this, Indian Airlines had to cut down its fare. But even after this, Indian Airlines was making profits with a record highest Rs. 656.1 million in the year 2004-05.

In 2007 UPA ministry announced the merger of the debt-laden Air India with the profitable Indian Airlines. The UPA government assumed that the huge losses of the bigger Air India could be easily covered by the average profits of the smaller Indian Airlines. What actually happened was the opposite. This merger resulted in a huge mountain of debt (amounting to $1.1 billion) for the newly restructured Air India. This also increased its losses manifold. Air India was still under total government control and the bureaucratic attitude of working only made matters worse.

The merger acted as the last nail in the coffin for the company. The company was already struggling with low fares and high competition and to top it off were the heavy debts. Government policies added to their woes. Moreover, government employees are mandated to fly by Air India on their official trips. This is like giving away your own revenue crippling the situation. After the merger, they had a total of 111 planes which came with their own cost of Rs. 70,000 crores. It was simply arduous for them to maintain these purchases of the planes. Another disastrous move was selling 5 Boeing 777-200 below the estimated price to Etihad which made Air India incur a loss of 671 crores following the deal. Moreover, they gave up on profitable routes to private airlines, especially in international operations. Out of the total of 370 routes, only 9 of them are profitable. Furthermore, there was mismanagement of manpower as they underutilised the pilots and the cabin crew by almost half the envisaged requirement which led to a loss for the airline.

Currently, Air India is under humongous debt. A government bailout package was of no impact. On 28 June 2017, the Government of India approved the privatisation of Air India. A committee had been set up to start the process. In March 2018, the Government issued an Expression of Interest (EOI) to sell 76% stake of Air India, along with low-cost airline Air India Express, and a 50% stake of AISATS, a ground handling joint venture with Singapore Airport Terminal Services (SATS). According to the EOI, the new owner would have to take on a debt of ₹33,392 crores (US$4.7 billion) and a bid would have to be submitted by mid-May as the Government wanted to complete the selling process by the end of 2018, but no private firms showed any interest in buying the debt-laden airline.

Having failed on previous occasions to sell the airline, the Government decided to sell 100% share of the airline and started its preparation in late-2019. On 27 January 2020, the Government released the Expression of Interest (EOI) to invite bidders. This time Govt. decided to sell 100% shares of both Air India and its budget carrier Air India Express as well as 50% shares of AISATS and to attract more bidders this time, the government has already decreased nearly ₹30,000 crores (US$4.2 billion) of debts and liabilities in a Special Purpose Vehicle (SPV).

Cue the entry of the pandemic which turned the entire situation upside-down only to block the road even further, having a major impact on Air India’s disinvestment plan. The Maharaja sustained a $500-600 million loss this quarter. Following this, the CAPA extended the deadline for submission of Expression Of Interest (EOI) till April 30. However, in the current scenario, it is presumed that no one will be coming forward to buy Air India. Though Tatas are interested in it, a single bidder will not make the deal a healthy one.  Hence, the government has planned to wait for market sentiments to improve. Until then the airline will be funded with $300-400 million to meet its interim operating requirements. All matters relating to the future of disinvestment seem to be unpredictable and obscure at the moment. A clear action plan can be expected from the government only when the Covid-19 tsunami has eased.