New Delhi: It is no secret that Tata Sons is now finally taking over debt-ridden Air India, which was once the crown jewel of the Indian government. But in the second decade of the 20th century, after ruling the skies like a true maharaja for decades, how did Air India end up in a pile of debt?
Much of the credit for the ouster of Air India goes to the Congress-led UPA. However, before we get into the depth of what went wrong, it is important to know that Air India has consistently made good profits for the government. For example, in 1991-92 the profit of the carrier was Rs 333 crore with loan from ITC.
However, with the entry of low-cost private carriers, the market share of Air India and other state-owned domestic carriers such as Indian Airlines declined. The effect of increasing competition was clearly visible as Indian Airlines slipped from the first to the fourth position.
To give private carriers a run for their money, the UPA-led government in 2006 decided to merge state-run domestic and international airlines – Air India and Indian Airlines – into one entity – National Aviation Company of India Limited (NACIL). decided to. NACIL was later renamed as Air India in 2007. The merger finally completed four years.
The idea behind the merger was to efficiently leverage the combined assets and capital. However, this only added to the ongoing unrest inside Air India.
To begin with, the combined losses of the entities increased from just Rs 770 crore in 2007 to Rs 7200 crore in 2009. Borrowing also increased to Rs 15,241 crore from Rs 6550 crore in 2017.
In addition, the merged company employed more than 30,000 employees, approximately 256 per aircraft – double the global standard. As a result, Air India spent about a fifth of its revenue on employee salaries, while private companies were spending about a tenth. All efforts to reduce costs by streamlining the employee base have repeatedly stirred up eleven of its twelve unions, causing temporary halts in operations and further losses.
Also, the civil aviation ministry had decided to buy 111 new narrow and wide body aircraft for Rs 67,000 crore before the merger. The decision proved to be a disaster in the years to come and even attracted a CBI inquiry on the orders of the Supreme Court.
Overall, the merger resulted in a total loss of over Rs 10,000 crore. The merged Air India was incurring a monthly loss of Rs 400 crore every month between October 2012 and March 2013.
With no options left, the government decided to regularly infuse cash to run the national carrier, while IndiGo, Jet Airways and SpiceJet captured 70 per cent of the Indian civil aviation market.
Further, former Civil Aviation Secretary MK Kaw in his autobiographical article regretted that the history of civil aviation in India has been a story of brazen exploitation and brutal corruption. Read also: Dark days ahead for India? Heavy shortage of coal can lead to huge power cuts – in pictures
He described it as a glaring tale of ‘anonymous ownership of airlines, demanding bribes, destroying rival airlines one by one, improper purchase of planes, mismanagement of bureaucrats and politicians, free jokes on inaugural flights, subsidized travel for multiple categories’. Said the story Passengers, VVIP flights, Haj flights etc’. Read also: Coal crisis: Power cut in Punjab as plants run at low capacity