This article is written by Rachit Garg from the University of Petroleum and Energy Studies, Dehradun. The article aims to give a brief account of the whole Air India Privatization scenario along with its history and also covering the economic and legal aspects.
Table of Contents
Introduction
Air India, 1st Indian airline founded in 1932 which was originally named Tata Airlines by J.R.D Tata, flying passengers and mails between Karachi, Ahmedabad, Madras, Bombay, and Bellary. However, after World War II, in 1946, Tata Airlines was turned into a public company, named Air India. In 1948, it made its first international flight to London.
But in 1953, the Central Government came up with the Air Corporations Act with the intention to merge and nationalize all existing eight airlines (including Air India) operating in our country. The act gave monopoly power to Indian Airlines to operate domestically, ruling out any other operators. The act created two corporations- Indian Airlines and Air India International. The previously called Air India’s name changed to Air India International, handling all the international flights and its domestic services were transferred to the Indian Airlines.
However, the Air Corporation Act was enacted in 1962 and the ‘international’ was dropped and was then called Air India Ltd again due to advertisement purposes. In later years, Air India entered into the jet age and became the world’s first all-jet airline.
The Initial Years
The presence of Air India remained strong until the 1990s with the leadership of J.R.D Tata as Director and Chairman whose tenure ended in the 1970s. It held a monopoly position for a long time being the only airlines in India flying domestic as well as international. The Maharaja Mascot created by J.R.D kept the brand connected with the Indian audience by keeping the Indian culture alive and maintained strong Indian values. The airlines made efforts to make memorable advertisements and have won various awards for its originality and the subtle humour, both in India and overseas. With the Maharaja as the mascot, it gained the symbol of Indian hospitality, popularizing itself because of its hospitality.
The Downfall
The airline enjoyed great market share until the 1990s, after which, the government opened the market for the private players when the brand started to unravel and cracks started appearing, With this move by the government, many new players entered into the aviation market. Travellers got a new choice with the competitive pricing by each airline which was aggressively advertising their services. Air India couldn’t keep up to the growing competition and gradually lost its market shares and incurred losses.
In 2001, Michael Mascarenhas, the Managing Director of the company was charged with corruption due to which Air India incurred a loss of Rs.57 crores. The airline was already making heavy losses by then.
The same year, the Atal Bihari Vajpayee Government formed The Naresh Chandra Committee to suggest a solution. The committee reports strongly suggested that the airline must be sold off, however, with the coming of the new government, the report and the issue of privatization were pushed under the rug. However, after a few years, Praful Patel, the then aviation minister suggested buying more aircraft to solve the issue. However, he bought 68 aircraft instead of the original proposal of 28 aircraft at an inflated price of Rs. 50,000 crore. This was done with the intention to pay off the debts with the profits earned through the new aircraft. However, the situation did not improve and the losses kept on increasing.
In 2007, the then UPA government decided to merge Air India and Indian Airlines. This was done with the idea that losses of Air India could be covered up by the profits made by Indian Airlines, forming a “synergy”. But the exact opposite of what was expected happened and the accrued losses of the airlines increased, which was recorded to be Rs. 63 crore in 2002-03 to a whopping Rs. 7000 crore in 2010-11.
Air India has been flying on 370 routes, out of which only 9 are profitable. A CBI investigation is going on for selling these profitable routes to private airlines.
Another reason for the downfall of the airline is that the government officials can fly for free through Air India, adding more to the losses.
Central Government Revival Attempts
The Turnaround Plan
In 2011, the UPA government, with the intention to save the airline came up with the turnaround plan, which involved infusing more than Rs. 30,000 Crore into the airline by 2020.
Privatization
Privatization broadly refers to inducing private sector participation in the ownership and management of the Public Sector Enterprise (PSU). The process involves transferring ownership of an enterprise, business, or public property from the government to the private sector, which generally operates to earn a profit.
In India, both enterprises operate as per the regulations forming a mixed economy. After the Industrial policy of 1991, the government has started following the strategy of disinvestment, which involves the sale of minority shares to a private partner and also selling the loss-making units to the private sector. However, some of the chronically loss-making units of PSU were either sold-off or were closed down after all their workers were given their dues and compensation. However, selling-off (Strategic investment) of these loss-making units involves complete transfer of the company’s ownership, while disinvestment involves the transfer of minority shareholding to the company, maintaining 51% shares with itself. Privatization is widely believed to be helpful in increasing the efficiency and performance of these units.
In June 2017, the Government of India finally approved the privatization of Air India. In March 2018, ‘Expression of Interest’ was issued by the government in order to sell a 76% (having the decision making power because of the 24% with itself) stake of Air India along with Air India Express, its subsidiary, and a 50% stake in AISATS, a ground handling joint venture with Singapore Airport Terminal Services (SATS). According to the terms of the EOI, the new owner had to accept the debt of Rs. 33,392 crore. The eligibility criteria were also set and the bidder’s net worth must be more than Rs. 5,000 crore. The efforts of the government failed as no buyer showed interest in buying the debt-laden airline.
However, at the beginning of 2020, the news reports says that the government issued a new EOI with more appealing sale criteria for the buyers. This time the government is giving 100% stake in Air India along with Air India Express and a 50% stake in AISATS. Moreover, the government has absorbed 2/3rd of its debt leaving at approx Rs. 23,300 crore that is to be paid by the new buyer. Also, the eligibility criteria for the bidder has been lower and set to Rs. 3,500 crore.
Economic Impacts
The possibility of improvement in profitability after Air India’s privatization is quite high. Moreover, currently the funds being used to revive the airlines can be used in the development of various other sectors like education, healthcare, and infrastructure, if it is sold off. Moreover, the aviation sector in India is experiencing tough competition because of the presence of private players who are more efficient because of their advanced technology. The government, on the other hand, does not have the resources to keep up with advanced technology. Thus, the privatization of Air India will ensure the technological upgradation of Air India.
According to the reports, The airline has a 11.5% domestic market share along with 42.8% of the international market. The deal will bolster the buyer’s presence in the market. The airline serves 54 domestic and 43 international countries. It will be a major attraction for the buyer, moreover, those who are not in the airline business can also bid.
However, people are also of the opinion that if the airline is privatized, aviation will be the only sector in India where there will be no state ownership. This can lead to a private-enterprise monopoly, which can increase the flight fares and the government would be unable to interfere.
Legal Impacts
Article 14 to 18 of the Indian Constitution gives the right of equality to all its citizens. Article 14 inhabits the general principles of equality before law along with protection from unreasonable discrimination. Article 15 relates to the prohibition of discrimination on the basis of race, caste and etc.. Article 16 guarantees equal opportunity in the matters related to public employment. Article 17 and 18 abolish untouchability and titles respectively. Thus, it can be said that our constitution promotes equality in various aspects.
It is an established fact that the state today is a welfare state, who has the responsibility to promote the prosperity and citizen’s wellbeing as enshrined in Part IV of the Constitution (Article 36-51), where certain directions are given that are to be followed by the state which ensures security to the people and economic democracy.
However, it has been argued by many that with the evolving concept of privatization in India, the state is destroying this idea of the welfare state by not achieving the objective of equality in various ways of dimensions.
Article 14
Article 14 declares that the state cannot deny to any person equality before the law and equal protection of law within the Indian territories. It means that among the equals the law is to be equal and that like should be treated alike. However, this right is not absolute and the state can find it suitable to impose reasonable restrictions on the basis of intelligible differentia.
With the increased efforts by the Indian governments in various sectors like education, trade, commerce, the state is denying rights related to equality given by the constitution. Privatization has severely affected the socially and economically weaker section of the society due to reservation policy, subsidies, and other benefits being denied.
Air India presently has a working staff of more than 18,000 personals and 700 approximately working on each plane. However, with the new bid offer, the employee has been promised job security but that too for only one year. Currently, Air India has employed more people considering industry standards. The new owner may not be upfront about the same and prefer cost-cutting, firing the unnecessary staff.
However, in the case of BALCO Employees Union (Regd.) v. Union of India, Supreme Court unanimously held and called the process of disinvestment- “a policy decision involving complex economic factors” and refused to interfere in the economic decision taken by the government. In the given case, the employees of the Bharat Aluminium Co. Ltd (BALCO) pleaded for their lost rights and protection under Article 14 and 16 of the Constitution due to the disinvestment of BALCO.
Preamble
The preamble of our Indian Constitution is the key to the mind of its makers as it spells out the intention of its makers. The word ‘socialist’ in our preamble helps bridge the gap between two when we use the word privatization. It has been argued by scholars that privatization promotes socialist principles. The term does not mean total state ownership and exclusion of private enterprises for the same. Instead of complete state ownership, where everything will be in the hands of the government, we are moving towards a laissez faire policy, where any private individual can be a part of and invest in any economic sphere. Moreover, as these socialist principles are becoming transboundary under privatization, it has opened the gates for foreign and multinational companies to invest.
Conclusion
Air India, being India’s first airline, plays a really important role in the history of the aviation sector. It reached great heights till the 1990s under the successful leadership of J.R.D Tata, who was the founder of the airlines. Had he been leading the airline, the situation might have been different. However, the reality is that Air India could not survive with the growing competition leading to wide options to choose from and because of other factors like increased oil price. Corrupt officials and wrong decisions speeded up the process. In such a situation, the government is only left with the option of privatizing the airline by finding the right bidder who will be ready to accept a portion of debts. However, no buyer has shown interest so far, even with complete ownership of the airline. But a lot of people are not in support of the same, considering its economic and social implications on the life of people, especially the person who is currently employed.
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