Air India: Inoperable & Unsaleable

Editorial INDIA TODAY dt June 19, 2017

• Air India, flagship national carrier, is to day inoperable and unsaleable.
• Air India has been piling up losses ever since the two erstwhile airlines – Air India and Indian Airlines – were merged in 2007 to form the present entity.
• Accumulated debt of Rs.52,000 crores & annual interest payout of Rs.5,000 crores is unserviceable. The airline has to repay Rs 19,000 crore by 2020-21.
• Air India’s combined OTP (on-time performance) at four metro airports is worst at 67.7% which means every third flight was delayed.
• Air India’s load factor was the lowest again among all national airlines at 81.4%.
• Air India’s share of the domestic market fell from 16% in Jan 2016 to 12.9% in Nov 2016. In January 2017, it improved market share to 14.1%.
• The airline is being kept alive by taxpayers’ money since the government is committed to pumping in about Rs 30,000 crore over a decade to prop up the airline’s equity. About 80 percent of this money has already been poured into the airline. The turnaround plan under Air India has been given such a massive equity support projects an operating profit of Rs 1,086 crore in 2016-17 on revenue of Rs 22,206 crore and a net loss of Rs 1,989 crore.
• Lenders mostly PSU banks & FI's are unwilling to take a 'haircut'. They are unwilling to convert debt into equity as well.
• Annual losses of Rs.3,000 unbearable.
• Govt of India is clueless how to handle this 'white elephant'.
• Air India management have no clue how to go about resurrecting it.
• Most undisciplined organisation today.
• According to public enterprises survey of 2014-15, just three PSUs accounted for over two-thirds (~62.9%) of the total losses incurred by the CPSE's in that year. They are BSNL, Air India and MTNL. 

My View:

Since divestment or privatization is out of question (no sane fellow will invest or buy Air India), Govt has only option i.e. shut down, dismantle, auction all its assets and repay all debtors from its coffers. That is the price Central Government has to pay for  signing as guarantor for Air India's debt. That would be the cheapest proposition. Govt has pumped in over Rs.24,000 crores during past decade as equity and it simply vanished. Any other option would cost nation, much more. Government should strictly implement BIFR norms of rehabilitating public sector units as soon as equity erosion exceeds 50%. Otherwise many more Air India's will surface year after year and costs nation dearly. Simultaneously, Govt should stop poking its nose into PSU's day-to-day management including Banks. Since PSU's are sinking one after other Govt should come out with a policy frame work to divest or sell all PSU's one after the other, ahead of their collapsing and confine itself to governance. BSNL Mobile was ready for launching in 2001 and the then Telecom Minister Pramod Mahajan intentionally delayed by over an year to favor Reliance Infocomm's launch in 2002, for which he was ousted by PM Vajapayee. BSNL has been reeling under six consecutive years of losses of over Rs.40,100 crore of accumulated losses. It has been crushed by private sector telecom rivals. The future is, there seemed no future. Unless PSUs are operated professionally free from political interference each one will find its way like Air India and BSNL.

Telcos in India deep trouble

• Until a year ago, all Telcos in India were fairly well off making impressive profits with stock prices attracting investors.
• With Reliance Jio launching its operations, a year ago, with its inaugural FREE offers compelled the existing Telcos to spend massive amounts in advertising and customer retention activities that resulted in erosion of their handsome profits and landing them with huge losses.
• The data with us suggests that the total EBITDA (earnings before interest, taxes, depreciation and amortization) of the sector on an annualized basis is Rs 65,000 crore, which is clearly unsustainable for debt of more than Rs 4 lakh crore," the SBI chairperson said.
• Now Indian banking sector already reeling under insurmountable NPAs of over Rs.7 lakh crores stands exposed to another huge risk of over Rs.4 lakh crores.
• While Mukesh Ambani's borrowings from Banks is over Rs.1,80,000 crores and his investment in Reliance Jio is estimated at Rs.1,50,000 crores against its original estimate of Rs.85,000 crores. His strategy was to destroy competitors and monopolize Telco business with its advanced VOLTE technology is dealing deadly blow to existing Telcos namely Airtel, Vodafone, Idea, Reliance Communications, BSNL etc.
• The ongoing consolidation in Telco sector in India will result in job losses to the extent of 40,000 this year.
• Mukesh Ambani used Bank's money to push Banks to the brink of collapse. It is a matter of time Telcos loans of Rs. 4 lakh crores will become NPAs. How Reliance Jio will pay back its Rs.1.5 laks crores is  a million dollar question.
• The loans to Mukesh Ambani were granted by Banks during Modi's tenure i.e. during past three years as quid pro quo for funding his 2014 election campaign expenditure.
• Whether Mukesh Ambani will be able to make profits for Reliance Jio amidst chaos in Telco sector and repay banks is another million dollar question. How many more years he will hang on, we will have to wait and see.
• In all Indian Banks stands exposed to monumental risk of Rs. 5.50 lakh crores in Telco segment, in addition to existing NPAs of over Rs.7 lakh crores.
• Since three years Banks were unable to invest in infrastructure segment and other high value projects due to paucity of funds. This has resulted in GDP growth looking southward in addition to the deadly blow dealt by mindless demonetization 2016.
• Meager budget support for inducing additional capital, public sector banks are simply biting time and recent ordinance with code for NPAs recovery being worthless and with discouraging global parameters, Indian economy today is spiraling down at breakneck speed with all economic indices looking southward there is no magic wand to halt this except looking towards sky for 'ache din'. But 'ache din' will come only when decisions are sound and implementation is faultless but not for rhetoric and high decibel shouting.

My View:

A decade ago while launching Reliance Infocom services Mukesh Ambani's statement is paraphrased as "I wouldn't be interested in a bigger piece of smaller pie but would rather aim at smaller piece of larger pie". But today he stands exposed to bulldozing competitors with his money power and establish monopoly in Telco market and eventually loot the consumers. All this facilitated by none other than Modi. While bank NPAs are result of reckless activities by UPA regime, destruction of Telco sector and monopolizing by Reliance Jio and further burdening of Banks and job losses is the creation by Modi himself.