The suspension of operations at Jet Airways — at one time India’s largest private airline — announced recently, follows the troubles at Kingfisher, Air Deccan, and Sahara. The aviation sector is rife with hope and distress in a highly competitive market over the last 30 years. Despite the fact that the Indian civil aviation industry in currently considered the third largest domestic civil aviation market in the world, the industry is suffering from several problems India’s government is pushing towards the privatisation of its debt-laden carrier Air India, which is losing market share amid cut-throat domestic competition.

Body:

Yes, Government can professionally run airlines in India:

• There is no empirical evidence that private sector can run a better airline. After being privatised British rail has gained a reputation for poor services and management.
• There are many sectors and routes which the private airlines may not be interested in flying as they may not find them economical to operate.
• Connectivity to northeast and other sectors which were not explored by private airlines were undertaken by air India but now this might be an issue.
• In some situations, it is necessary to carry out emergency evacuations of Indian nationals from other countries due to natural hazards, political instability or wars.
• The civil aviation market in India, like in many parts of the world, is oligopolistic, with a few firms controlling large market shares.
• Forcing the exit or merger of an established state-run airline with the third largest market share by which has 31% of the planes in the sector and prime slots at airports worldwide will only aid in the undesirable concentration of market power with a few already large private airlines, and will prove anti-competitive.

No, privatization is better for airlines:

• Indian state need not run commercial enterprises for the simple reason that it tends to compromise profit for achieving overall welfare of the people
• In the case of Air India, the airline needs better management so as to not be a burden on the country’s finances.
• The government will have to keep bailing out Air India with taxpayers’ money if it decides to hold on to it.
• In the case of Air India, the cost is a lot higher as it is consistently making losses and is dependent on the government for survival. Further, the presence of state-owned enterprise distorts the market.
• A firm with access to government finances and practically no fear of failing affects price discovery in the market and can hurt private sector operators in the business.
• The government has fiscal constraints and needs to spend more in important areas such as health and education.
• The privatisation of airlines will ensure that the industry will run in a rational way. The private player, will bring about a rational spending, funding and capital infusion in Air India.
• According to Economic survey, disinvestment in public sector airlines will help boost Indian airlines’ international market share.
• Problems faced by public sector airlines could be diluted:
  • For instance, since 2011-12, despite infusing Rs 24,000 crore of taxpayer money as equity support into Air India, the domestic share of the carrier has fallen from 19% to 13%.
  • The accumulated debts of the carrier have increased to around Rs 50,000 crore.
  • The national carrier is one among other airlines that were struggling and is still undergoing a 10-year rehabilitation package that started in 2012.
• Brings in more professionalism and reduces political interference.
• Competition might lead to lower fares.
• Helps it to achieve targets under UDAN scheme.

Way forward:

• Offer a single integrated network:
  • The domestic and international operations should be offered in one line, as there is significant value in the feed which they provide to each other. Air India is also part of a global system as a result of its membership of Star Alliance. Separation of domestic and international operations will result in reduced interest.
• Provide comprehensive disclosures:
  • The data room should include detailed information on Air India’s finances and labour contracts as these are two of the most sensitive issues that will impact interest and valuations. A large proportion of the technical staff is due to retire within the next 5-10 years which is an issue that the new owners will need to prepare for.
• India should encourage development of domestic hubs so that Indian airlines can take passengers directly, instead of foreign carriers first taking passengers to their home countries and then offering them onward connections.
• To make private airlines operate in uneconomical routes, special incentives or subsidies can be granted to airlines operating on such routes.
• The government can establish a specialised agency under the Defence or External Affairs Ministry for evacuating Indians from foreign countries.
• On easing current restrictions on Indian airlines to fly overseas, the Survey has advocated a further liberalisation of the 0/20 rule.
• Public sector airlines will have to cut layers of management, align staff by role, bring in lateral hires, overhaul customer facing functions, and implement a massive training exercise.