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BW Businessworld

Revelations Awaited

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The annual accounts of Air India should have been published by now; the longer they are delayed, the more will people wonder how bad they will be. They were bad enough last year. For a quick recall, the airline lost Rs 5,550 crore on revenue receipts of Rs 13,402 crore. Its wage bill was Rs 3,356 crore; so even if the government had closed down the airline and sent its employees a cheque for their wages without asking them to do any work, it would have saved over Rs 2,000 crore. That excludes the cost of hired aircraft, Rs 1,177 crore, which the airline would have saved if it had not flown the aircraft to make losses. And it would also have saved the Rs 408 crore it paid in booking fees to travel agents. The grounded aircraft would not have had to consume Rs 5,015 crore of fuel, and a good deal of the Rs 1,060 crore the airline paid in landing fees and navigation charges would have been saved. The decision to keep the airline running was, of course, taken by the government on behalf of the people of India, from whose pockets Air India's losses are financed. It is true that a substantial proportion of the loss consisted of interest and other charges for past follies; but even if they were excluded, Air India lost Rs 3,718 crore. So on its current business, it made a loss of 28 paise on every rupee it earned. Of its revenue, Rs 1,366 crore was on account of airport handling services to which the government has given Air India a monopoly, and which private airlines would have preferred to handle themselves.

The profit and loss account does not give a grim enough picture of Air India's plight. It does not only specialise in making losses; it also has ambitious long-term plans to make losses. With this object in view, it had taken on future lease obligations of Rs 13,559 crore. In other words, whatever losses it might make, it had committed itself to lease planes in the future. The government's investment in the airline was a measly Rs 1,007 crore; for its planes and other accoutrements, the airline had borrowed Rs 25,066 crore. On these enormous debts it would have to continue to pay interest. But the loans can be repaid. The airline would have to sell off its planes to do so; and without planes it would have to drop its plans to fly to eternity. But the debt is extinguishable.

The reason why it will not be extinguished is that the government's ministers value the front left first-class seat that they get free when they travel abroad. Some snooty ministers refuse to travel Air India, and persuade their rich friends who own private airlines to give them the same front seat in their planes; but by and large, ministers use Air India, where the staff can be expected to fawn on them. But even if all the 80 ministers of Dr Manmohan Singh's expanded cabinet were to fly every day of the year, and even if their tickets were to cost Rs 1 lakh a day, all their tickets together would cost less than Rs 300 crore. So for a fraction of Air India's losses, he could keep his entire cabinet suspended in the air all the time, each in his own plane. Private airlines would be delighted to offer him an attractive deal.

If he were to think on those lines, there is no reason why he should stop at international flights. He could equally well negotiate the best seats for his ministers in domestic airlines. There is more competition amongst them; so he should be able to drive an even better bargain in the domestic market. He may not even have to pay for the seats. For the government owns airports, and earns a good income from letting private airlines' planes land, dock and park; those charges can be exchanged for free seats. Some of the private airlines are in deep financial trouble, and some of their owners are politically influential, so they have not paid airport charges for many months. It would make good business sense for the government to convert these debts into free tickets.

The only remaining problem would be the airline staff. They are trouble enough even when at work; without work they would be impossible for the government to handle. Even on their own they can cause a traffic jam outside the ministry of aviation; if the people of Delhi turned up to see demonstrating air hostesses, the situation may turn uncontrollable. But the employable ones amongst the airline staff can be hired out to private airlines. The best way would be to hold an auction and invite all airlines of the world to bid. If some employees remain unengaged at the end of it, the government has considerable experience in retiring people early with a golden handshake out of the taxpayer's money. He will be prepared to pay the price for getting rid of the white elephant.

(This story was published in Businessworld Issue Dated 01-08-2011)