Air India Boeing 787-8 Dreamliner line number 35 test registered N1015 (later became VT-ANH) at the India Aviation show, Hyderabad March 2012. Photo copyright Devesh Agarwal.
Air India Boeing 787-8 Dreamliner line number 35 test registered N1015 (later became VT-ANH) at the India Aviation show, Hyderabad March 2012.

The incestuous relationship between Air India and the government

Air India is an enigma. It was the first airline in the world with an all jet fleet, ahead of the Americans and Europeans. From being the epitome of luxury, grace and hospitality, the palace in the skies, the airline is, today, a bottomless pit swallowing crores of tax-payer rupees. This despite having one of the most modern wide-body fleets in the world, and having the best airport in the world as its hub. Like its other mammoth loss making PSU (public sector under-taking) cousins, BSNL and MTNL, Air India is from the two “success story” sectors which India is expected to dominate in the decades to come; telecom and aviation. Irony knows no bounds.

Yet, inexplicably, despite the views of some of the most respected economists, and policy makers, the Indian government, refuses to exit Air India and continues to pump crores of taxpayer rupees. Why?

The answer lies in the incestuous relationship between the government and Air India. The former gets a multi-billion dollar play-toy, and latter gets kid-glove treatment, and both get absolutely no accountability to the tax-payers whose money is being burnt faster than the fuel in jet engines.

To better understand the situation, three recent articles deserve a reading.

The desperate need to jettison Air India

The first by Dr. Ajay Dua, an economics major from the London School of Economics, and a career bureaucrat who served as Secretary in the Ministry of Commerce and Industry, and in the Department of Industrial Policy & Promotion. In The Economic Times Dr. Dua outlines why “Getting rid of loss-making PSUs such as Air India would be good for the economy“. Observe the choice of words. No diplomacy from a person who would have practised diplomacy his entire career.

Failing performance? shift the goals

The next article by Sindhu Bhattacharya, contributing editor at CNBC-TV18, exemplifies the kid glove treatment the airline receives from the government.

After having received over Rs 25,000 crore of its Rs 30,000 crore bailout, the airline now wants relaxation of the performance targets it agreed to, in the turn-around plan (TAP) which was the basis for the bailout in the first place.

Why? you might ask.

Unbelievably the TAP makes the assumption that oil prices will remain at $45 a barrel, when it has been well over $100 for most of the last seven years during which the TAP was agreed to and under execution.

Now the airline wants the government to shift the goalposts and cover the losses incurred by missing the agreed-upon performance targets due to the amateurish assumption. One surely has to question the professionalism if not, the very competence of the airline’s staff.

Though mild, the article makes interesting reading on how the government forgives everything Air India.

Huge additional indirect subsidies for Air India

The article though does not highlight the innumerable additional indirect sops the government provides Air India. From guaranteeing its loans to ensure lower interest rates, to guaranteed business by mandating government travel including leave travel be performed on the airline, to extended payment terms with no penal interest to the government controlled fuel companies or the airports authority of India. All the additional costs being borne by the Indian tax-payer.

The government will never let go of Air India

At a time when airlines across the world are declaring record profits, and not withstanding all the benefits it receives, Air India is still expected to declare a monstrous loss this year. The Editor of The Business Standard A.K. Bhattacharya explains the incestuous relationship (he calls it ‘mutually beneficial’) between the government and Air India in his op-ed article, and why the government will never let go of its play-toy.

Social implications of Air India bailout

To most of us, Rs 30,000 crore is an intangible. As an exercise, I will try to put Rs 30,000 crore into something socially tangible.

Akshaya Patra India asks for a donation of just Rs 750 (Rs 950 in August 2017) to feed a child for one whole school year. The Rs 30,000 crore translates to feeding 40 crore (400 million) 316 million children one square meal a day for one whole year. [Added August 2017] The Rs 55,000+ crore debt of Air India will feed over 580 million children. With 195 million hungry people India houses over quarter of the world’s hungry. The Air India bailout can feed all the hungry in India for two years!!! Can we not deliver the Prime Minister’s “Ache Din” (good days) promise to these hungry? Does India need a government run airline more than the hunger of its citizens?

Incidentally, India’s priorities with relation to hunger and wasteful expenditure are already being questioned in Forbes magazine. I agree with India’s need for defense, no one can substitute for the Indian armed forces, but a national carrier? When we already have five domestic airlines?

Share your thoughts via a comment.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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  1. Few days ago, I was booking a roundtrip MAA-BLR-MAA,, and I looked into Air India as an option. While other airlines tickets were between Rs.2,200 to Rs.3,700, Air India alone was in the range of Rs. 12,000+. Worse yet are the timings. And one of the tickets that they were offering was BLR-DEL-MAA (yeah, go to delhi from Bangalore to come to Madras!!!). I don’t think they are interested in Aviation at all. Period.

  2. Hard hitting piece as usual by you Devesh. Great read. Guess we are stuck with the devil.

  3. Well said Devesh. I hope some babu will read this and push this a parliamentary debate and bill(Congress – will any way boycott !). Perhaps there is a lot of “give & take” which is beyond our knowledge and understanding for both BJP as well as Cong ? Hope some thing positive happens in 2015.

  4. A national carrier(in theory) is a symbol of the country to the whole world. It is in a way showcasing your country to the travellers around the world. The culture, the hospitality, the food, everything should speak about your country. Its almost like a PR agent. Private domestic airlines would not think beyond profit and would not think twice beyond their own personal interest. A national carrier cannot do that. Private players can stop any route (domestic) if its not profitable but even if load factors are less, a national carrier would continue to serve those limited people. And hence for a country like India, a national carrier is required. Air India’s only problem I see is that it never gets real world people into the company to lead it. People who have experience of running an airline. This lackadaisical approach of “sab chalta hai” is the culprit for this abysmal condition. But as a concept Air India is definitely required. Don’t you think?

    • Sanket, in my humble opinion, your points can be achieved by targeted subsidies. British Airways, Lufthansa and other so-called national carriers are actually majority privately owned. Singapore Airlines is allowed to be run as a stand-alone company and is listed on the Singapore stock exchange. In many parts of Europe and the United States, the government provides a subsidy and airlines have to bid to provide services to the un-economic routes. In India even today, the route dispersal guidelines require all airlines, private included, to fly un-economical routes without any compensation from the government.

      • You do make a very good argument but are any of our private domestic players in a shape to take the lead role ‘like’ a national airline? Doing things like the operation in Egypt and Yemen carried out by Air India, taking our important dignitaries like PM and President to foreign countries, or even what Air India does during Haj and all that. Would the private airlines do that even on subsidies? Except IndiGo, all of them are shaky in terms of their own domestic operations

        • Private Carriers CAN perform all the tasks Air India does at present. Rescue ops like the AI did in Libya, Yemen etc ARE NOT the functions of an Airline. These operations should be done by IAF. According to my knowledge, No other National carrier does such ops.
          PM and Presidential trips also shouldnt be done by AI. Go and look in logs, even dues of Manmohan Singh’s trips are still unpayed by the Govt. As already decided by Govt, AI will be stripped of its responsibility for transporting Head of State/Govt and it will be performed by IAF operated Boeing 777-300ER.

          • For rescue missions if IAF is providing aircrafts no worries there. I agree those aircrafts will be far more suitable on different terrains. But as a flag carrier, if the airline is transporting our political elites what is the harm? The problem is when they do not get paid properly. Use 777 or for that matter A319 for all I care. But pay them their dues. Then there is no problem is there!

          • The problem with a government owned airline transporting political elites is the abuse it engenders. When you have a dedicated military unit, the rules are strict and there are controls on who is entitled to service and how much of it. You don’t have chota ministers commandeering entire 321s just so their relatives can get more business class seats.

            The executive ministers (Prime Minister, President, Defence, Foreign, Home, and a few others) can be catered to by and IAF VVIP unit. The rest can fly commercial and submit their claims. There’s no need for the government to own an entire airline to do this. In fact, travel for all these bureaucrats and ministers becomes much easier if they aren’t restricted to just flying Air India. They can take the most convenient and cheapest flights available. This is exactly how most government executives in the rest of the world travel. And exactly how executives in the private sector travel.

        • Sanket, it appears you did not read this article which was linked in this article.

          I have exemplified how the heads of France, UK, Ukraine travel. It is in a leased and small aircraft. Why is a 747 needed? “I am bigger than you” mentality?

          Rescuing of citizens by any of the NATO countries is done by the armed forces of those countries. They may charter civilian aircraft, but mostly done by their own transport aircraft. Indian Air Force has spent over $10 billion (Rs 60,000 crore) on the C-17 Globemaster III fleet. Use it!!! What is the VVIP fleet consist of? How many Embraer ERJ business jets and how many Boeing Business Jets (BBJ) already fitted with the VVIP security suite?

          Air India, FYI, leases planes from other airlines / operators for its Haj operations. Again a government function. Plenty of aircraft are available for charter. All the private carriers will salivate at the chance of charters. Full plane, guaranteed income. Who will not, not take it.

          Why should the airline provide the subsidy or receive the subsidy? Government is providing it. The dark dirty secret is that like the loan waiver scheme, the government announces the scheme to gain political benefit, but expects PSU banks and Air India and others to carry the actual debt in their books as a due from the government.

          Please tell me when did you last see the Prime Minister of the UK come by a British Airways aircraft with a call sign SpeedBird One? Speedbird One is BA1 and BA2 LCY JFK. A318 all business class service. It used to be Concorde.

          • Using fuel guzzlers like 747’s for trips to Bangladesh and all are totally uncalled for. Even for long distance there are far more better aircrafts available and I know fleet management is a big issue for AI but if a national carrier is ferrying the political elites and gets paid properly I don’t think there would have been such a hue and cry.
            For rescue missions and others, fine use the military aircrafts no issues. Even Air India like for Haj, can lease VVIP jets for such elites so that they normal schedule is not disturbed.

            As you said previously about Singapore and all, for AI its the meddling of the government on payment and appointments that has led to this. It must run as a separate entity. If the government treats it like any other company which it utilizes for whatever operations but pays properly, it can still be termed as a national airline.

            On a brighter note, with the money AI will get if government pays properly, they can expand so much and since the government is now pushing to harmonize the north east with the rest of the country, AI can ensure that all the 7 sister states are connected to either the Kolkata hub or something so that this isolation of those states can be stopped. Money can be used for new aircrafts replacing the retired A320’s and tapping into new destinations.
            I think a flag carrier can coexist with others if the government is not messing with its business and allows it to function freely all the while doing what is expected of it for nation’s interest.

          • SIA is given special exemptions to allow them to hire models as cabin crew.

            Air Indira should also be given the same exemptions.

        • Nonsense.

          1) That the government has to rely on Air India says something about their failure to buy adequate amount of heavy lift aircraft for the Indian Air Force.

          2) It’s stupid to rely on just one air line for national lift capability. The US government maintains a register and pays ALL of its major airlines contingency fees so that it can draft as many aircraft as is necessary in a national emergency. The GoI should not just be relying on Air India. It should have agreements in place with Jet Airways, IndiGo, SpiceJet, etc. so that it can use the airline best positioned to help at any given time.

          3) Air India, having one of the smallest fleets is actually poorly positioned to help the IAF. It’s quite likely that IndiGo has greater capacity to help the IAF in an emergency. They’ve got many more aircraft, all with the range to reach Egypt or Yemen.

          4) Respectable countries buy proper VVIP aircraft to transport dignitaries. The President of the USA stepping out from Air Force One or Marine One is iconic. Could you imagine how it would look if he were stepping off an American Airlines aircraft? And this is not just for respect. Having the Air Force handle VVIP transport ensures that the activity is handled with the highest security and secrecy. You can’t do that, if you are using an airline that may have to divert aircraft for the job.

    • One should ask the hundreds of millions of starving people in (mostly rural) India whether they sympathise witht the middle classes’ need for a government subsidised national carrier for purely symbolic value.

      Next, I question your premise. Many formerly state owned carriers have been privatized. Are they any less symbolic in their role? Is Air Canada or British Airways less reflective of their home nations as private carriers? Is American Airlines or United Airlines, which have been privately held for most of their history any less reflective as symbols of the USA?

      Lastly, Air India functioned best as a symbol when it was privately held and run by the Tatas. That Air India showcased the best of India. Since becoming state-owned it has become a potent symbol of the impotence of the Indian state. Air India is now truly symbolic of the incompetence and corruption that is peristent within the Government of India.

  5. Insightful article in The Economist 29 Nov 2014.

    “In other parts of the world, budget airlines can cut costs by outsourcing maintenance, baggage-handling and security. Indian airlines must keep such functions in-house”

    The India cricket team got a white coach in 1999 and never looked back.

    If Modi really wants to turn Air Indira around, he should hire a firangi CEO and let him do whatever he wants.

    • Not necessarily. And I say this as an NRI.
      They just competent (non-government) leadership. That can come from the private sector. Beyond that, they need a pledge that government won’t interfere.
      That’s tough.