Better late than never

The recent Cabinet decision to privatise Air India (AI) is indeed a decision that should have been taken a couple of decades ago, but then, better late than never. Having said that, let me rush to add that the question of whether or not it is a right decision is almost irrelevant. It is an obvious decision but the correctness of the decision can only be gauged by “HOW” it is implemented. We should certainly give the benefit of the doubt to the NDA government, as they have a track record (during NDA-I) of doing a good job of disinvestment / privatisation. All the present government has to do is learn from its own past track record and improve upon it.

The government should start by clearly articulating their key objective. The real objective should not be to maximise the financial value out of the deal but give the best economic value to the public- the ultimate owner of the national carrier. Firstly, the government has to articulate clearly that they are looking at it from the general public/passenger point of view and that they are concerned but are not driven by the impact of the decision from other perspectives- employees, bureaucrats, politicians, manufacturers etc. Going forward, with privatisation, clearly, a lot of taxpayer’s money will be saved. No more giving away free equity to be pumped in like the Rs 30,000 crore bonanza given last time. No more funding of losses by the government or haircuts to the banks (which are also owned by the public). From the passengers’ point of view, hopefully, one more significant private player in the market will result in better pricing and better services.

We need to look back and see what went wrong to understand who we should select and how, what should be the role of the government, if any, going forward and how we should deal with situations where AI indeed played a stellar role - be they in evacuation of stranded Indians or in giving access to remote locations to mainstream them into the economy. The first lesson for the government is that no commercial company should be run by politicians. If it is, there is no doubt that it will be a mess, even if the managers are capable and committed. Secondly, the government should not randomly merge two entities which are like chalk and cheese. Bringing together Indian Airlines and (erstwhile) Air India is what accentuated the grounding of the merged entity. This lesson is important in the present context of several such mergers being talked about in the PSU space.

The third important lesson is that the government should stop trying to compete with (and end up losing to) the private sector in those markets where customer service is critical. The government processes and systems are too rigid and non-responsive in a fast-changing dynamic market. Unless there is an emergency situation, the government processes don’t work (and to be fair, they work excellently when there is an emergency situation- such as in natural disasters or evacuations). And finally, the government has to accept that having a conflict of interest situation in a commercial space cannot be a desirable situation nor will it help the company concerned.

Committee to decide
The good thing is that the Cabinet has decided to form a committee to work out the details of disinvestment. I am sure that the committee will take good advice from all experts and experienced people. The committee will have to take some hard decisions:

On future of employees: Design the terms to encourage staying back by real experts and committed ones and of course, encourage all others to leave

On financial liabilities: Not passing on anything more than profitable asset linked liabilities

On land and other real estate assets: Some of which may not be accurately known; unbundling them may be a good and clean option

Brand: Let’s continue with Air India

Also, the committee has to take some key policy decisions and clearly state the future positions - on bilateral rights and first right of refusal, if any; on flexibility in getting rid of unprofitable or indeed any routes; on contracts with other government agencies which again may not be accurately known (Airport Authority, for example); on role of the new airline in emergency works; on subsidiaries -unbundling them or not (Engineering, Ground Handling etc.,).

In other words, the committee needs to burn the midnight oil and dive deep into all these complex issues and not rush into making simplistic assumptions or indeed not assume that this does not require deep professional expertise to make it work.

And finally, who could be a good suitor for AI - the emotionally attached Tatas, the interested-in-international operations Indigo, the ever-expanding West Asian players, the emerging market funds eyeing India, the global deep-pocketed stressed asset buyers, the I-know-the-Indian-consumer-very-well Telcos and retail folks or some patriotic sounding rich Indian billionaires. Well, your guess is as good as my guess and all I would say is that the government should be wide open in its approach and should only remember its own key objectives while designing the evaluation criteria (which we understand is a part of the committee’s mandate). The process is as important as the outcome (no point letting Supreme Court decide years later that the process was flawed). It is a tough exercise and tightrope flight and we should all wish the government good luck.

(The writer is an infrastructure expert who has worked with aviation sector clients for long)