In its 8th report tabled in August 1998, the Disinvestment Commission examined various options for dealing with the problems of AI. The actual financial figures given in that report are naturally different from the latest financial figures available, but the basic recommendations are valid even today. Four options were examined.
Option1: The first option said there would be no financial support by the government and no disinvestment. AI’s financial performance is bound to deteriorate further and would become a sick company in the near term. Sickness of AI would result in total dominance of traffic in and out of India by foreign airlines, with attendant consequences.
Option2: While examining the 2nd option of continual sustenance support, the Commission had pointed out that unless AI’s operating performance improves substantially, the benefits of financial restructuring would not be sustainable in the medium term. Similar fund infusion would need to be repeated at regular intervals, implying recurring and substantial financial burden on the exchequer.
Option 3: The 3rd option was related to government support of Rs.1,000 crore as suggested by AI at that time, but meeting fleet replacement, modernisation and expansion would have cost Rs.20,000 crore.
Option 4: The 4th option involved government support of Rs1,000 crore for immediate financial relief followed by strategic sales. The Disinvestment Commission recommended that option four be adopted and following steps were recommended:
While steps are taken for putting through the strategic sale expeditiously,
the following measures may also be taken:
1. The maintenance, engineering and ground support operations of AI, which are inherent strengths of the carrier, could be hived off as separate companies. In line with the current global trend, this would enable AI to benefit from outsourcing of these services and reduce its overheads.
2. Currently, AI connects major international destinations with all major international airports in India. A well-knit and effective hub and strong arrangement with Indian Airlines (IA) would enable AI to provide direct and convenient connectivity with all Indian airports. For this, there should be a clear demarcation of roles which these two airlines have to play in providing better customer service and jointly competing with other international airlines.
3. A voluntary retirement scheme (VRS) should be immediately introduced to reduce manpower.
4. Since airline is a highly service oriented industry, AI should initiate steps to improve quality of its service that will help the carrier in enhancing its market share.
5. In its sixth report, the Commission had given its recommendations on Hotel Corporation of India Ltd (HCIL), a wholly owned subsidiary of AI. The recommendations included sale of Delhi and Mumbai Centaur hotels as separate units, initiation of dialogue with J&K government for Centaur Srinagar and the decision regarding flight-catering services to be taken by AI. AI management should take suitable view on these recommendations while undertaking financial restructuring exercise.
While the Commission was examining the case of AI, the government had appointed a committee to examine the merger of IA with AI. This matter was not referred to the Commission. The committee recommended that IA should be merged with AI with other consequential arrangements. Couple of years ago, the government merged IA with AI without referring to the committee’s recommendations to the Disinvestment Commission, which had table the report in August 1998. The only action taken on the Commission’s report was to segregate AI’s Centaur hotel and go for a strategic sale, which became controversial. It was during the same time when Commission had table its report that AI had asked for financial support of Rs1, 000 crore from the government. Now, after a decade, AI has urged the government for financial support of Rs10, 000 crore.
The situation for AI and the government is dire. Any decision taken now will apply to both the foreign and domestic operations as IA has been merged with AI. The question of surplus employees of AI has not yet been addressed. When the Commission gave its report, the problems were relatively easy to manage. The cost of delay of 10 years has become quite heavy. Mere induction of funds of large amounts of Rs10,000 crore has become bit too heavy. The restructuring of the merged foreign and domestic operations has become more complicated. It is not clear how long AI can manage in both domestic and foreign operations, without major restructuring of foreign and domestic.
It is time for the government to constitute another high level committee with representatives of employees and financial institutions to revisit the recommendations of the Disinvestment Commission and examine the present situation and report within two weeks. It may be possible to unwind and separate AI from IA and with short term government guaranteed support from institutions and offer AI on strategic sale on the lines recommended by the Disinvestment Commission.
The views expressed in the column are by GV Ramakrishna who is the former chairman of Disinvestment Commission, former chairman of the Securities and Exchange Board of India (SEBI) and former member of the Planning Commission.