Pauperisation Of A Maharaja

When the government unceremoniously removed the controversial managing director of Air-India (A-I), Michael Mascarenhas, last month, it may have protected its present but made its future uncertain. The timing too could not have been worse for A-I, as its disinvestment process was nearing completion. The government's record in disinvestment is nothing to write home about. In the past, targets have never been achieved and the government has burnt its fingers in hasty decisions. The current controversy may put the sale of India's international carrier in jeopardy and hurt its chances of getting a good price.

As things stand, there are just two bidders for one of the world's oldest airlines and with the world airline industry in recession, there are doubts about the kind of price India can get for its flag bearer. Officials in the civil aviation ministry and A-I are not too sure about what is going on in this regard. Says a top A-I official: "At no stage was A-I or even the ministry of civil aviation directly involved in the process. The disinvestment ministry is conducting the exercise on its own. We don't know how it will fare."

A-I's disinvestment process has been hitting speed-breakers right from the start. The original impressive list of suitors, which included British Airways and Emirates, has dwindled due to procedural delays, policy flip-flops and the government's decision to cap foreign equity at 26 per cent. At present, there are just two bidders—the Tata-Singapore Airlines combine and the Hindujas, who are under the Bofors cloud.

Naturally, those in power are sceptical. Says a highly-placed source: "Isse kuch nahin niklega. Ye parchain ke saath lad rahein hain (Nothing will come out of this. They are fighting shadows). What is disinvestment with just two bidders? Moreover, out of the two, there is just one serious player, the Tatas, so who decides on what would be a good price?"

Officials involved in the disinvestment process feel that the Mascarenhas affair may have its toll on the two remaining bidders as well. Says one: "Even Singapore Airlines may quit now. Why should anyone invest in a company where the MD is suspended on charges of corruption?" Others feel that with the current controversies, the price bidders quote may be much lower than what A-I would have commanded in less turbulent times.

On the other hand, disinvestment ministry officials are miffed over certain decisions the civil aviation ministry has taken of late, which they think will affect the price. The decision to resume signing of bilaterals—the right to control flights of other airlines to and from India—with foreign countries, they feel, may affect the price as bidders might be indirectly affected. A-I bosses agree that typically, all airlines freeze bilaterals when a disinvestment exercise is on.

The aviation ministry, however, feels that the signing of bilaterals has worked in both A-I's and the country's favour. Says minister Sharad Yadav: "We will obviously sign bilaterals keeping the interests of A-I and our traffic in mind. If we do not enter into bilaterals, we will lose foreign exchange as one-third of our country's foreign exchange comes from nris and tourists. In fact, instead of losing anything, our load factor has improved after this. And if these bilaterals benefit us, the disinvested entity will also benefit from them."

The other contentious issue is that of awarding ground handling contracts to private parties which, according to official sources, should be the prerogative of the disinvested entity and may now lead to dampened bidder interest.

Ironically, despite signing 96 bilaterals with foreign entities, the airline has been able to utilise less than 50 per cent of these, primarily because of its limited fleet strength. At present, the company has 26 aircraft and it would need to more than double that to be able to take advantage of all its bilaterals. And most of the present aircraft are between 15 and 20 years old.

Company officials say that increasing the size of the fleet has not been possible because of lack of funds and the fact that for anything which calls for an expense of over Rs 50 crore, the decision goes beyond the company's board to the Union cabinet. And when one aircraft costs around Rs 700-750 crore, the time taken to get it cleared is anybody's guess. Says a top bureaucrat in the aviation ministry: "As long as A-I is under government control, the web of rules and regulations will prevent it from becoming profitable and efficient. It has to get out of the government domain to improve."

Consider the flag carrier's financials. The company has been in the red since 1995, when it ran up losses of around Rs 250 crore. Although it has been able to stanch the bleeding substantially in subsequent years, it is yet to get its balance-sheet back in black. The airline's operations too have taken a beating. Thanks to faulty calculations, it no longer flies to many lucrative destinations; these include Frankfurt, Amsterdam, Geneva and Rome. A decade ago, the carrier flew to 32 destinations. The number is 19 now, with the only promising ones being London and Paris.

Not only this, A-I has removed first class from almost all its routes and its business class leaves much to be desired in terms of service, when everyone in the aviation industry agrees that the bulk of the profits come from the front of the bus, ie, first class and business class. Under these circumstances, disinvestment could end up being more of a distress sale than a strategic one.

It is also an open secret that both aviation ministry and A-I officials are against disinvestment. Says an A-I official: "What is the purpose of disinvestment? If A-I can be managed properly, why sell it in a hurry? If A-I is to be sold, it should be sold at a proper price."

For the record though, both civil aviation and disinvestment ministry officials maintain that the due diligence scrutiny of A-I's assets and financial records by the bidders has been completed and the disinvestment exercise will be carried on in right earnest and will be completed by end-June. But it will surprise no one in the know if more hurdles crop up in the next few weeks. For, any number of vested interests want to keep the Maharaja moving at his leisurely gait.