Air- India Privatization

CONTENT
• Overview of aviation industry
• History of air- India
• Air- India before privatization
• Air- India after privatization
• Pros & cons of privatization
• Financial crisis
• Private airlines business in market
• Path forward
• summary
 Overview of aviation industry
1912: Indian State Air Service in collaboration with
Imperial Airways conducted first flight in India between
Karach and Delhi as an extension of London-Karachi
flight.
1932: Tata Airlines, first Indian airline formed.
1953: All airlines nationalized and consolidated under Air
Corporations Act 1953.
 1986: Air Taxi Scheme – Private companies allowed non
scheduled air transport.
 1994 – Liberalization policy – Air Corporation Act 1953
repealed.
 History of air- India
 1948: Air India International formed as a national
carrier.
 All airlines nationalized and consolidated under
Air Corporations Act 1953.
– Indian Airlines Corporation (Domestic)
– Air India International (Internationally) formed.
 In 2001, Air India was put up for sale.
Privatization of NACIL (Air India International &
Indian Airlines) was announced in 2001.
 Air India serves 9 domestic destinations and 16 international
destinations in 11 countries.
– Together with its subsidiaries the group connects 93
destinations worldwide in 24 countries across Africa,
Asia, Europe and North America
 Why liberalize?
 To promote competition
 To enhance economic efficiency
 To facilitate trade and globalization
 To protect consumers from anti-competitive
behaviour
To provide better quality goods and services at
lower costs
To generate employment and economic
growth
 To promote broad development objectives
 To meet growing demand that incumbent
cannot meet
 To reduce incumbent’s inefficiencies and to
make it competitive
 Air- India before privatization
 consumers are avoiding it, its service is terrible and its
employees are going on strike! Can it get worse?
 As a matter of fact, it can. The worst case scenario
would be if the Government of India bails out the
company using taxpayers' money. That would
effectively tell the employees that they can continue
their 'who cares?' attitude forever and continue to
work in an inefficient, troublesome, uncompetitive
manner, knowing full well that a big government
package is just around the corner of any crisis in the
future!
 Air India is not competitive because the Government
owns it. Now, as the company grapples with the worst
crisis in its history, there is only one solution: privatize.
 Air- India after privatization
 In 2007, the Government of India announced that Air
India would be merged with Indian Airlines. As part of
the merger process, a new company called the
National Aviation Company of India Limited (NACIL)
was established, into which both Air India (along with
Air India Express) and Indian Airlines (along with
Alliance Air) will be merged.
 Once the merger is complete, the airline - which will
continue to be called Air India - will continue to be
headquartered in Mumbai.
In July 2008, it was reported that Air India was seeking
US$ 534 million in aid from the Indian government to
cover its losses. In the wake of rising fuel prices, the
airline decided to hike its air fare in June 2008
 Pros & cons of privatization
 If the compensation policies of any Public sector
or Government organization is changed little bit,
then it will motivate people to perform and
reward those who have performed.
 Its not that only privatization alone could stop
the losses of Air-india. But if all entities become
privatized the revenue of the government would
be a little back.
 We can expect that, it could be improving the
facilities, services provided to the customers &
efficient workers and also proper advertisement.
 Pros
 If Government of India wants to gain profit they
have to changed their policies right from its root.
 The Indian government's lack of commercial
insight is hampering Air India's growth, “every
decision goes through multiple channels in the
Indian government and nothing ever happens”.
 selling part of the carrier to a foreign investor
would subtract from the airline's fixed value, but
in reality if the government does not relinquish
control, "Air India's value could go to zero and it
could simply be stampeded out of the market."
 Cons
 Privatization can not be the only solution, It's not
like in govt. organizations have human employees
while private sector is having supermen or
advanced robots.
 If one single person as a ceo or group of 10 board
members can do rectify the problem, then pvt is
the solution. If AI operates as a PSU, our ministry of
aviation will have its own soft corner to some
employees which will hinder the development.
 Privatization is the only one option to recover the
losses, if so then why private airlines making
losses year after year???
 Cons
Around 2006-07, the airlines began showing
signs of financial distress. The combined
losses for Air India and Indian Airlines in 2006-
07 were Rs 7.7 billion. After the merger of the
airlines, this went up to Rs 72 billion by March
2009. This was followed by restructuring plans
which are still in progress.
 The talk of privatization of Air India reflects
the negative mind set. What happened to the
private airline - Jet Airways? Why are they
making losses? Why were they unable to rein
in on pilots strike?
 Financial crisis
 Around 2006-07, the airlines began showing signs
of financial distress. The combined losses for Air
India and Indian Airlines in 2006-07 were Rs 7.7
billion. After the merger of the airlines, this went
up to Rs 72 billion by March 2009. This was
followed by restructuring plans which are still in
progress. In July 2009, SBI Capital Markets Ltd
was appointed to prepare a road map for the
recovery of the airline. The carrier cancelled the
purchase of six Boeing 777-300ER in July 2009
and sold three Airbus A300 and one Boeing 747-
300M in March 2009 for $ 18.75 million to
survive the financial crunch.
Private airlines operating in market
 Currently: Air Asia, Emirates, IndiGo,
Qatar Airways & SpiceJet.
  Path forward
Things to Look Forward
 Technology Vision 2020
 Global airlines traffic to increase in lieu of the good
performance
Allowing of Private Participation & FDIs in construction
& maintenance of air traffic infrastructure
Air transport supports US$3 trillion of global economic
activity. That is 8% of global GDP and 29 million jobs
Challenges
Infrastructure
Avian Flu
Tackling the rise in Fuel Price
Waving of Tax Exemption on leasing from government
With the advent of LCC, other airlines too reducing their
price significantly
Costs pressures (ATF Prices & Staff Cost)
 summary
 There is a need for a strong and independent
regulatory body.
 The implementation of competition regime
will help prevent anti-competitive issues
arising because of government ownership.
 Privatization is essential for effective
liberalization and therefore competition.
THANK YOU