ONE of the surest ways of expanding a company’s operations and growing at a rapid pace is when the segment it operates in performs exceedingly well.

In India, one sector that shows tremendous promise for growth — and where most companies are faring exceedingly well — is civil aviation, which is zooming at a fantastic pace.

Unfortunately, for state-owned Air India, the public sector and loss-making behemoth, it is a time when its bosses have to worry about its future. Top government leaders including Finance and Defence, Minister Arun Jaitely, junior Aviation Minister Jayant Sinha and top officials of NITI Aayog — the government’s top policy think-tank — have been talking about the likely privatisation of the ill-fated carrier.

“The government is looking to allocate taxpayers’ money to uplift other sectors. Therefore, the only option left is privatising the airline”

Last week saw a sudden revival in interest in privatisation of the airline, especially after reports emerged that N. Chandrasekaran, chairman of the Tata Group and a close aide of Ratan Tata, chairman emeritus of the Tata Sons — was in informal talks with the government leaders over acquiring a majority stake in the airline.

Air India was founded by the late JRD Tata in 1932, as Tata Airlines, with an investment of Rs200,000. Incidentally, Tata flew the airline’s inaugural flight on October 15, 1932, in a single engine de Havilland Puss Moth from Karachi to Bombay via Ahmedabad.

Tata renamed the airline as Air India in 1946, but seven years later it was nationalised by the government. JRD Tata, however, was retained as its chairman for another 25 years, before it ended up being headed by politicians and bureaucrats.

But JRD’s successor, Ratan, a keen aviation follower, has always been keen on acquiring Air India. Way back in 2000, when the then Prime Minister Atal Behari Vajpayee was busy selling off many public sector units, he decided to privatise the airline.

The Tata group announced it would bid for a 40pc stake in Air India and also joined hands with Singapore Airlines. But Vajpayee could not push ahead with the scheme.

More than a decade later, the Congress-led United Progressive Alliance (UPA) government was also keen on selling the airline — and Tata was again eager to acquire it — but opponents resisted the move and got it dumped.

The third attempt to sell off the government ownership could prove successful. Arvind Panagriya, the vice-chairman of NITI Aayog, reiterated that privatisation was the only feasible option for the airline.

“There have been several attempts to revive the airline, but unsuccessful,” he told an interviewer earlier this month. “It is the taxpayers’ money that is being spent to clear debts. The government is looking to allocate this money to uplift other sectors like health, education and infrastructure. There­fore, the only option left is privatising the airline.”

Jaitley, who had also backed the move in 2000, is now pushing ahead with the plans. “When I briefly worked as the minister for civil aviation in the Vajpayee government, I had signed on Air India’s file asking for its total disinvestment,” the minister recently told state-owned television channel Door­darshan. “When 84pc of the aviation market can be run by private airlines there is no reason why it cannot go to 100pc,” he declared.

According to him, the government has no business to run an airline. The NDA government is fully in favour of exiting Air India, if a suitable investor is found, he added.

WITH a massive debt of nearly Rs600bn, Air India is indeed undergoing a major crisis. The Directorate General of Civil Aviation (DGCA) says the airline’s domestic market share has fallen to 14pc, way behind private carriers IndiGo (with a nearly 40pc market share) and Jet Airways (more than 15pc).

The civil aviation sector in India is flying high. According to the DGCA, Indian carriers flew over 10m domestic passengers in May, shattering all previous records. A year ago, they flew 8.6m passengers.

The 17pc+ growth was also evident in the number of passengers carried by domestic airlines between January and May this year; it rose to 46.6m, as against 39.6m in the same period in 2016.

According to IATA’s 20-year air passenger forecast, India would emerge as the third-largest aviation market by 2026, replacing the UK

The rise in passenger traffic and the fall in oil prices have seen shares of the three private carriers soar to new highs. They include InterGlobe Aviation (which operates IndiGo), SpiceJet and Jet Airways.

The Indian government appears to be serious about privatising Air India only now. But international observers have been eagerly following the aviation business in the country and have been cheering its rapid growth. All the leading aircraft manufacturers are also bullish about India.

The International Air Trans­port Association (IATA) has said India is the fastest-growing aviation market in the world. The Geneva-based IATA says India’s air passenger traffic is expected to touch 442m by 2035, a phenomenal increase of more than 320m passengers in less than 20 years.

According to IATA’s 20-year air passenger forecast, India would emerge as the third-largest aviation market by 2026, replacing the UK. China is expected to replace the US as the fastest-growing aviation market. India will emerge as the third-largest market after China and the US.

While the Tata group is keen on acquiring a stake in Air India, it already has a significant presence in the Indian civil aviation market. The group tied up with Air Asia and launched operations on the domestic sector about three years ago.

While Air Asia Berhad has a 49pc stake in Air Asia India, the Tatas have raised their equity to more than 40pc from 30pc earlier. Air Asia is today India’s fourth-largest low-cost carrier, ranking just after IndiGo, SpiceJet and GoAir.

The group also has a tie-up with Singapore Airlines, with which it launched Vistara in 2013. Analysts note that if the Tatas acquire Air India, they would ensure that Vistara has a major role to play in its operations.

State-owned Air India, though a loss-making carrier, has a significant fleet strength and caters to a large flying clientele. It has nearly 120 aircraft, and 75pc of its capacity is on international operations.

Published in Dawn, The Business and Finance Weekly, June 26th, 2017