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Concept of a 'national carrier' is outdated PDF Print E-mail
Wednesday, 18 April 2018 03:45
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RSS chief Mohan Bhagwat needs to know few developed countries have ‘national airlines’, the world has moved on

 

Apart from the labour issue, the govt will have to relook various riders in the Air India sale such as the need to run it as a going-concern on an arms-length basis

 

RSS chief Mohan Bhagwat’s views on the Air India sale were, not surprisingly, very nationalistic and most would subscribe to his view on the need to ensure Indian control of the national carrier. Speaking at the Bombay Stock Exchange, Bhagwat said that many countries do not allow more than 29% FDI and Germany allows only 49%. India allows foreign airlines to buy only 49%, but non-airline foreign investors can buy even 100% of an Indian airline, though in the case of Air India, the lead partner has to hold at least 51%—which means the majority shareholding will be Indian. While Bhagwat’s statement that Air India should be given to someone who can run it well and turn it around signals the RSS support for the privatisation, it is unlikely the chronic loss-making airline is worth anywhere near what he thinks it is. Indeed, while the list has not been made public—the last date for potential bidders submitting queries was April 16—these will tell us just what the potential deal-breakers are. It is interesting to note that, in a TV interview, while not saying whether he would bid for Air India, Tata Group chairman N Chandrasekaran agreed that the airline business was a low (PE) multiple one.

The biggest issue, needless to say, will relate to Air India’s huge staff. While the Department of Investment and Public Asset Management (DIPAM) guidelines allow potential buyers to retrench workers after one year of the strategic sale, since this is subject to applicable laws—government permission is required for any firm that has more than 1,000 employees—the chances of this happening are really low. Also, as many people have pointed out, there are various other problems with the privatisation plan. Few airlines like the idea of the government retaining a 24% stake in Air India since this would give it two board seats and, therefore, the potential to interfere with the running of the airline.

The clause which says that, till the government completely exits, Air India has to be run “on a going-concern basis, as was being conducted prior to the date of completion of the Proposed Transaction; and on an arms-length basis from its other business”. If an established airline is to buy Air India—for the landing slots Bhagwat spoke of or the bilaterals it has—surely it will look for synergy, so how can the airlines be run separately? Not allowing the airlines to change consortium partners after they submit an expression of interest is also odd, but not as worrying as the earlier ones. While the government will have to sort out these issues—a generous government-paid VRS is one possible solution to the labour issue—to the satisfaction of bidders, what leaders like Mohan Bhagwat and many influential ones in the BJP, the Congress and other parties have to keep in mind is that the world has moved on from the ‘commanding height’ days of national carriers, national telecom firms, national steel firms, etc.

British Airways is generally, and rightly, seen as the UK’s flag carrier, but it was privatised via an IPO in 1987. Lufthansa, generally seen as the symbol of Germany, was privatised via the IPO route in the 1990s and KLM was fully privatised in 1998; indeed, Swiss and Austrian are owned by Lufthansa. The US which owns the world’s most valuable airline—Southwest is worth $33.1 bn—has never had a government-owned airline. China’s big three airlines are all state-owned and, after a government-bailout following its 2010 bankruptcy, Japan Airlines was once again privatised in 2011—it was originally privatised in 1987. Korean Air was privatised in 1969 itself and Australia’s Qantas was sold in 1995. So, while every country has a flagship airline, it doesn’t have to be government-controlled and it doesn’t even have to be owned by that country’s citizens.

And just as the world has moved on, so has India. In the early 1990s, when India was first liberalising, BSNL, MTNL and VSNL were considered to be very valuable companies, India’s national telecom firms as it were. And not surprisingly, given the years it took to get a phone connection and the huge charges for making international calls. Today, when the private sector players are in full bloom, does anyone even remember the state-owned telcos? Between them, BSNL and MTNL have less than a 10% share in the mobile phone market. Doordarshan was once a colossus; today, it is anything but that. Air India is a presence in the to/from India market, but it pales in comparison with IndiGo in the local market. Does it really matter to anyone that Bharti Airtel has a large foreign shareholding, that Vodafone is fully foreign-owned or that Maruti is mostly Japanese? Bhagwat was right when he spoke of the need to drop dogmas and ‘isms’, but that needs to be applied to the need to have ‘Indian’ telcos, airlines, auto firms, etc, as well.

 

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