Helping Air India take off

It is far cheaper to bail airlines out from time to time than to run them. The taxpayers will mind but not as much as they do now.

Seldom, as Winston Churchill might have said about Air India's never-ending tragedies, has so much been written by so few about so little. The Indian Railways (IR) has a 1,000 times more capital invested, carries a 100 times more passengers and is in a much bigger mess than Air India (AI). Yet, far more attention is devoted to the latter. The reason is well known: planes are sexy while trains are dreary. But surely Governments, especially those that claim to speak for the common man, should not be swayed by such considerations. Nor is it just their plights that the Railways and Air India have in common. They are both run by government departments although, nominally at least, AI has a corporate structure. But there are differences too, and two of these are critical. One is that while IR has a trained cadre to manage it, AI has only civil servants — mostly from the IAS but also sometimes from other services. Some have their hearts in the right place but alas, not the intellectual capacity to go with it; others have their brains in the right place but not their hearts; a small, but usually influential, minority has both in the wrong place. Second, the present dispensation notwithstanding, ministerial whimsy and discretion in IR are subject to considerable control. But for Air India, the ministers and the bureaucrats of the Ministry of Civil Aviation are all-powerful beings. So, if the Railways delivers value for less, it is clear where and what the problem is. To resolve this issue, the government must either abolish the Aviation Ministry, while empowering the DGCA and AERA, or it must staff the former with a cadre of aviation professionals, as the IR does. Whatever is decided, the present system must go.

It is also worth asking if the taxpayer must fund an industry whose average returns, globally, in any given span of 10 years, are around 1.5 per cent. The simple point is that, while aviation is physically non-risky, financially, it is worse than dog-racing. That is why the business requires so many risk-mitigating policies, such as non-compete guarantees (which is what ‘bilaterals' are) and even officially sanctioned cartels (which is what IATA runs). Such policies are because of the high capital and skill intensity of the business. As market structures go, it is as close to perfect competition as one can get; in fact, however, the whole business is a cartelised oligopoly. Since the Indian government is short of the two main ingredients, should it be in this business at all? Therefore, along with staffing the Civil Aviation Ministry with professionals from the business, 74 per cent of Air India must be sold off, if necessary as a garage sale.

For the Government to stay on in the aviation business is like an indigent staying in a 5-star hotel. It is far cheaper to bail airlines out from time to time, as other countries do, than to run them. The taxpayers will mind but not as much as they do now.

Published on May 11, 2011
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