WHAT WE WILL LEARN IN Section
- Why is the Government trying to sell Air India?
- Is it good or bad?What can be its long term implications?
- Is this the first time Government of India is trying to sell Air India?
- How is the Air India disinvestment important for PM Modi?
- Airline divestments across the world
BACKGROUND OF AIR INDIA
- Air India: Air India, formerly named Tata Airlines was founded by JRD
Tata. It was renamed as Air India, primarily operating on international
routes in 1946.
- After World War II, it became a public limited company and was
renamed as Air India.
- 1948: Post Independence in 1947, the Government of India acquired
49% stake in the air-carrier.
- 1953: The government passed the Air Corporation Act and purchased
majority stake in the airline. The company was renamed Air India
International Limited and the domestic services were transferred to
Indian Airlines Corporation as a part of the restructuring exercise.
- 1994: Air Corporation Act was repealed to allow private airlines to operate on domestic routes
- 2000: The National Democratic Alliance made attempts to privatise the air-carrier. The Centre dropped the privatisation plan.
- 2007: Erstwhile Air India and Indian Airlines merged into single entity named National Aviation Company of India Limited (NACIL), later rechristened Air India Limited.
- 2009: Both companies started racking up losses and after the merger the losses went up to Rs 7,200 crore in that year.
- 2012: The United Progressive Alliance commissioned a study that recommended that Air India be partly privatised. However, the Opposition didn’t let it happen. So, the ruling UPA government approved a turnaround plan to infuse over Rs 30,000 crore into the airline till 2021.
AIR INDIA-INDIAN AIRLINES MERGER: A FAILED ONE?
- The merger was initiated with the aim of making profits and gaining high
market share for the airline.
- Big reason for the downfall of this airline was the merger between
erstwhile Air India and Indian Airlines, which was done despite the fact
that both carriers are totally opposite of each other.
- There were many differences between the two companies in terms of
work culture, areas of operation, compensation, working conditions,
entitlements etc. The merger resulted in massive discontent and
frustration amongst the staff.
POINTS TO NOTE
- Escalating costs of Aviation Turbine Fuel
- Immense competition from private and low-cost airlines
- More than 1 chairman
- During the period 1998–2004, no new planes were ordered for
AI or Indian Airlines.
- After the merger, Air India continues with both Boeing and
Airbus-made planes: the international operations are run
mostly by wide-body Boeing 777 jets, while domestic routes
mostly use A320S. The result: high operations, maintenance, and
- On January 10, the government decided to allow foreign direct investment (FDI) of 49 percent in the airline. That means a foreign player could end up owning a notch less than half of the flag carrier, by tying up with an Indian company.
- Already, the Tata Group and InterGlobe Aviation, which owns IndiGo, have expressed interest in buying
- Air India has a debt of over `50,000 crore.
WOULD BUYING AIR INDIA BE A GOOD IDEA?
- There are many reasons for an investor to buy Air India
- Apart from the large fleet that it has [119 aircraft, excluding its subsidiaries], the airline also has a number of bilateral rights and slots at some of the biggest airports in the world.
• It is not just India’s aviation market that the buyer will have access to. The airline owns some of the most expensive real estate in India and abroad, and also operates ancillary services.
- For instance, Air India Air Transport Services (AIATSL), its ground
handling arm, enjoys a near monopoly. The airline is also a
member of the lucrative airline network Star Alliance.
- Star Alliance is one of the world’s largest global airline alliances.
Founded on 14 May 1997, its current CEO is Jeffrey Goh
- Headquarters is located in Frankfurt am Main, Germany
- Its slogan is “The Way The Earth Connects”.
OBJECTIVES OF DISINVESTMENT
- To reduce the financial burden on the government
- To improve public finances
- To introduce, competition and market discipline
- To fund growth
- To encourage wider sharing of ownership
MANY COUNTRIES HAVE SOLD
- The aim of the sale should be to get the best price for the airline.
- Selling Air India would also be a significant blow to VIP culture.