Taking Debt Off Air India Books Is Way To Go: Selling It At Re 1 Is Poor Political Optics 

The Narendra Modi government seems finally to be seeing the light on how Air India should be privatised. After the failure of its 2018 privatisation proposal, where it had not only proposed to retain some residual stake but also overload the airline with debt, a few months ago it decided to leave only some debt on the airline’s balance-sheet.

Now, post-Covid-19, where no airline is able to keep its head above water, there seems to be a complete rethink: Air India may be offered with zero debt, or minimal debt (read here and here).

This is the right way to go. The problem, in the case of any privatisation proposal, is the political optics that need to be addressed. When something with a large physical presence is to be sold, the public has an expectation that the proceeds will be sizeable enough to justify the sale.

Without a positive inflow from the buyers, opposition politicians will yell corruption, favouritism and skullduggery in the sale process, and many members of the public will buy the idea.

What the public sees is the physical planes and counters of Air India, which obviously have a positive value, not the invisible debt hiding in its balance-sheet that makes the actual value of the airline negative.

As things stand, the airline’s total debt is said to have ballooned to over Rs 69,000 crore (excluding the amounts that are supposed to be taken over by the government before privatisation).

Its net worth is very negative even taking all its assets on board (foreign routes, landing slots, land and properties, including brand name). It needs no financial genius to come to the conclusion that even at a Re 1 sale price, Air India is an albatross around the buyer’s neck.

It is politically impossible to tell the public that the buyer had to be paid, say, Rs 20,000 crore in cash, to take the airline off its hands.

No politician who hopes to be re-elected can expect the public to swallow the idea that an entire airline has been sold for Re 1. One can picture Prashant Bhushan filing a public interest litigation in court saying the Re 1 he paid as fine for contempt of court could have been used to buy the airline.

We can picture Rahul Gandhi saying even beggars on the street could have bought the airline, and how the whole privatisation was meant to favour the winning bidder. Not for nothing did financially-challenged Mamata Banerjee claim some time ago that Air India was a “national jewel”.

The real reason why the government has to sell is not because Air India is of no use to it, but because it will continue to swallow large amounts of taxpayer funds year after year just to keep it afloat and airworthy. The sale is to prevent the airline from bleeding the nation dry till the end of time. It is about cutting future losses.

Politically, the move to take most of Air India’s debt off its balance-sheet makes a lot of sense, for it makes the airline look healthier than it is. Also, purely from the point of view of public and political optics, a debt-free Air India will obtain a positive sale price, since assets minus zero liabilities will be valued positively by potential buyers.

So, whatever price is realised can be used to pare down the debt that now shifts to the government’s books.

This is the right thing to do, both politically and economically. Air India should be sold without its debt, and suddenly we could see more suitors than just the Tatas.