From the Government of India to the Tatas, who ironically were the original founder-owners. In the boring and nerdy world of people who follow privatization and divestment efforts, this is a minor miracle. A part of me still finds it hard to believe that Air India is sold. Perhaps the most expensive set of toys held on by the Indian government, the Air India’s fleet, despite best attempts, managed to make the government lose thousands of crores every year. At the time of sale, the company’s debt was over Rs 65 thousand crores. The winning bidder would assume only around Rs15 thousand crores of existing debt, while the government will have to absorb the rest and pay it off by itself (over Rs 40 thousand crores). This loss will be in addition to the tens of thousands of crores the government pumped into Air India for the past few decades. And yet, despite the so called ‘losses’ on the deal, the government deserves major praise for getting it done. Air India wasn’t just an airline, it was a perennial loss maker that could never really make money now, especially given the massive interest burden on the huge debt. The government having sold Air India means the losses stop immediately, which some estimates suggest were over Rs 20 crores a day. Money that can be spent on development and welfare. Of course, the government could have absorbed the debt and given the airline a fresh start – under the same management. But it didn’t, for it realized that the issue wasn’t the debt, but what led to the debt – poor management. Keep cleaning up the debts, keep paying the bills and keep running the airline the same way – nothing would change, and the losses would continue.
For some strange reason, Air India had become a ‘national pride’ symbol, making the sale a harder one, especially for a government that has nationalism is one of its key political planks. And yet, the government did it. Air India isn’t the Indian Air Force. A loss-making, cash-burning airline ranked low in global ratings is not a symbol of national pride, no matter what its ownership, history or name. National pride comes from excellence, not something Air India was known for.
To sell a loss-making, government employee staffed airline at any normal time is hard enough, to do it when most international travel is compromised deserves extra praise. To the entire GoI team that worked on the deal – congratulations.
Air India is no ordinary privatization. It’s a high-profile and highly-visible company. A 100% sale of AI shows that privatization can be done, and citizens are okay with it. There was little backlash on the sale announcement. It is the season to privatize – and the government should do more of them.
The AI sale also had good lessons for future divestments. Here are the top-3 cardinal truths to keep in mind, so it doesn’t take twenty years to sell a PSU next time.
- Accept privatization a a part of life, no point debating it – Enough data now exists to show that the government should not run most businesses. Yes, it is true that one shouldn’t blindly support all privatization. However, one shouldn’t call every privatization a ‘fire sale’ or ‘selling family silver’ either. Frankly, if holding silver is going to be a dumb investment going forward, one should get rid of it anyway. Privatization vs. nationalization debates have validity, but they are not silly binaries. A certain set of PSUs will and need to be privatized, accept it.
- Price the deal right – Air India sale attempts failed in 2001, 2018 and even in 2020. Mostly, it was on account of price. The government was always going to absorb some debt, the issue was how much. Today, the Tatas will just take about 30% of the airlines existing liabilities for the entire airline (govt absorbs rest). Earlier attempts to get private players to assume 50% or 40% liabilities failed. PSU sales are not family silver being sold for peanuts. PSUs are financial assets that need to be priced right. Else nobody will come forward to buy it. The deal had to make sense for Tatas too. Tatas are taking huge execution risks, hoping to turn the airline around and manage the massive staff used to government job style perks and accountability. For this, the Tatas should make some money. Hence, they must enter the deal or buy it at a reasonable price.
- Give up control – Past AI sale attempts attempts to sell 40% and then 76% of the airline failed. This time, a clean 100% sale worked. The government choosing to stick around, even in a minor capacity, means a turnaround could be compromised. A government is used to doing welfare, a company needs to be run based on commercial returns. The government has to leave. Leave the newly married couple alone. Exit, and don’t stick around to peep through the window.
The Air India sale hopefully a change of mindset towards healthy privatization that improves Indian productivity. The deal is also a masterclass on how to get a privatization deal done – with firm resolve, fair pricing, giving up control and yes, merely celebrating the marriage and then leaving the couple alone. There’s plenty more PSU kids who still need suitors, after all!