After nearly 70 years of government ownership, Air India has been sold back to its original owners, the Tata Group, for $2.4 billion. This finally brings to an end a longstanding effort on the government’s part to rid the loss-making airline off its books. While the sum raised is not enormous in the context of the national debt, it will at the very least ensure (perhaps?) that the taxpayer will no longer have to finance the operations of an airline that has fallen way down the pecking order in India’s commercial airline space. This is important given the economic situation that we are currently in.
Air India’s position in the Indian commercial airline landscape today is in direct contrast with its standing a few decades ago. Founded in 1932 by the industrialist J.R.D Tata, Tata Airlines, as it was known then, completed its first flight from Karachi to Bombay that same year. Its founder was the pilot during its inaugural flight. J.R.D Tata, or ‘Jeh’, is known in this country as the father of Indian aviation. He was the first Indian to be granted a commercial flying license and Tata Airlines became India’s first commercial airline.
Until independence, the airline primarily functioned as a mail carrier with a few domestic routes for passengers. It wasn’t until 1948 when the airline embarked on its first international journey from Bombay to London. By this time it had changed its name to Air India. In 1953, the company was forced into nationalisation despite intense resistance from its founder. Jeh was allowed to continue as chairman until 1977, but the majority owner was now the Indian government.
Air India emerged as a representative of independent India on the international stage. Under the leadership of its founder, the airline built up a reputation of excellent customer service, boasting passengers such as the King of Sweden and the Pope. It was also the first airline in Asia to enter the ‘Jet Age’ by purchasing a Boeing 707. Air India also worked closely with notable artists such as MF Hussain and Slavador Dali, commissioning the latter to produce 500 ashtrays for its first-class passengers in exchange for a baby elephant. The airline used the works of the artists in its marketing campaign and is said to have played an important role in propelling the careers of many Indian artists such as V.S Gaitonde, Mario Miranda, and B. Prabha. Its art collection currently sits in a building in Mumbai’s Nariman Point and is a worthy of a museum in itself.
Air India has also played a key role in times of crisis. During the 2nd World War, the airline assisted the allied effort with the transportation of troops, supplies, and rescue of refugees, In 1990, it brought back more than 150,000 Indian from Iraq and Kuwait when war broke out between those countries and in 2019, it did evacuated the Indians stranded in Wuhan during the outbreak of the coronavirus.
The historical reputation of Air India is one to derive pride from. What then explains its current reputation as a debt-ridden enterprise that the government has struggled to find buyers for until very recently? The short answer, and in this case the complete answer as well, is nationalisation. For as long as Jeh remained as chairman the airline was doing reasonably well. From the 1980s onwards, however, the government began appointing individuals from outside the organisation and simply chose poorly in terms of personnel.
A government-owned enterprise also means a near-unassailable hurdle of bureaucracy when it comes to staff management. There are stories of Air India having two employees for the same job in many positions, with some positions being redundant jobs such as timekeeping (literally adjusting the clock). In 2001, the airline employed more than 17,000 employees, this was more than three times that of any US airline at that time. With a fleet of only 24 planes, it beggars belief what the population of a small town is doing at that organisation.
In the early 2000s there was talk of privatisation, but that plan quickly fell through much to the braggadocios delight of the then aviation minister. The final nail in the coffin came in 2007 when the government made the error of merging Air India with Indian Airlines (the latter operated only on domestic routes while the former was used exclusively for international travel). This merger resulted in enormous losses for the newly formed enterprise which forced the government to spend heavily to finance the debt and the airline was even forced to sell off a few planes.
Interestingly, it was the BJP and the CPI(M) who were strongly opposed to the idea of privatisation in 2013, when then aviation minister Ajit Singh stated that it was the only lifeline available. This opposition forced the government to commit even more funds to the company who also had to sell back their newly acquired Boeing 787 Dreamliners.
The BJP government today has a long list of state-owned enterprises that it wants to get rid off, and while the sale of Air India is a positive, the money recouped is abysmally low. Of the $2.4 billion that the Tata Group has bid, only 15% will actually be paid to the government with remainder being taken on debt by the Tatas. The government will also continue to be liable to the tune of $6.2 billion in borrowings. The impact of this debt on the Indian taxpayer will be clearer in the coming days. Despite all this, the mere fact that the taxpayer will no longer have to bear the burden of maintaining the airline is still good news.
What lies ahead for Air India and the Tata Group? The Tatas already own Vistara along with Singapore Airlines and hold a majority stake in Air Asia. Air India, however, does have a strong base upon which sound management can build on.
It is a member of the Star Alliance and has slots at a number of the worlds busiest airports. Its fleet consists of a good mix of narrow and wide body planes and within the 12,000 or so employees lies of good amount of properly trained personnel.
The Tatas must first deal with workforce. They are legally obliged to continue employing all workers for a period of at least one year, after which they must offer them a voluntary retirement scheme. There is no question that a certain amount of slimming must take place. The new owners must also invest in refurbishing the interiors and re-training the customer-interfacing employees so that they can start offering premium services at premium prices. Currently, the discounts on long-haul international flights make Air India tickets much cheaper than their competitors.
There is a lot of potential for the once great airline to regain its position as the flag-bearer of Indian commercial aviation. The main problem all these years has been government ownership. Now, with that out of the way, and with reliable management in place, there may well be better days ahead for the ‘Maharajah’.