Privatisation on the horizon for debt-laden Air India?

During the heydays of privatisation, in Thatcher’s Britain, our national carrier was turned around. Like many nationalised companies in Britain, our national carrier had its focus on their demoralised staff rather than customers, operating without an ounce of consideration for making a profit and wallowing in its losses. Privatisation gave British Airways a new start – shifting its focus, resetting the agenda and ensuring the airline made $284 million in profit within the first year of new management.

With privatisation, BA was given a new lease of life. Could Air India do the same?

Around the world, airlines such as South African, who are owned fully or partly by their respective governments are flailing. Nationalised airlines are forced to operate politically motivated “prestige” routes which don’t make economic sense and simply don’t have the fresh ideas and logical leadership to take them forward.

Since their bailout in 2012, Air India has relied on taxpayer funds to stay afloat. However, in mid-2017, the Indian cabinet agreed that the process to privatise Air India should begin. Whilst Air India remains the largest international carrier in India, they have suffered a collapse in their market share due to the rise of low-cost airlines and the competition from other full-service airlines such as Jet Airways and Vistara whom have more economic competence. They only occupy 14.6% of the domestic travel market and, internationally, competition has come from the Middle Eastern airlines who have attracted customers through their Gulf hubs, travelling to Europe & North America. The bottom line is: under government ownership, Air India has failed to evolve and adapt around the changing dynamics of the aviation industry.

Middle Eastern airlines have adapted much more quickly, and taken much of the international market share from Air India.

Recently, further developments have been made and it is now expected that the Indian government and advisers are to analyse the shareholders’ agreement and other details to ensure that the board and key management personnel are appointed by an Indian entity. The government has also taken steps to ensure that the majority shareholder remains an Indian entity (with a 49% stake being offered to a foreign investor). The decision to allow foreign companies to invest is a marked change of tone from the Indian government, presumably to allow sufficient changes to be carried out in order to turnaround the troubled carrier. It has been reported airlines such as Vistara and SpiceJet (some of Air India’s main competitors) are interested in purchasing, and the former’s parent company Singapore Airlines may also be interested.

Air India does have a more modern flight than airlines such as Jet Airways, with A320NEO and B787 Dreamliner aircraft becoming increasingly prominent. Photo by: FlightGlobal

Ultimately, privatisation looks like the best option for Air India. Its a chance for the national carrier to shred their reputations, put their debt behind them and truly take-off. But with the process already attempted before in 2001, and constant obstacles such as parliamentary panels advising that Air India should be given five years to revive under government ownership and the unions’ holding of anti-privatisation rallies, the process is likely to be pain-staking and drawn out.


What do you think? Will privatisation help Air India rectify its problems? Get in touch with us, we’ll be happy to hear your opinions.