DNA Edit: Losing Altitude Fast - UPA’s merger plan crashed the once-profitable Air India

It has been obvious for over a decade now that Air India is a strain, like no other PSU, on the exchequer. As per the latest records, it is sitting on a debt pile of over Rs 60,000 crore, and the servicing of that debt alone puts the government back by over Rs 4,000 crore annually. To provide context, the Air India debt exceeds the allocation to the health sector in FY18 by over Rs 12,648 crore. News reports indicate that the government is seeking to sell a stake (no definite commitment on the exact size has been forthcoming) in the indebted national carrier to a strategic partner or partners, with an intent that funds that are being used to keep the airline operational can be channelled into other priority sectors.

The government’s noble and lofty intentions, notwithstanding, which sensible corporate entity would like to sink its money into a carrier that has accumulated losses of over Rs 40,000 crore and running on a cash shortfall of Rs 3,000 crore? At a time when fuel prices literally hit rock bottom, Air India managed to declare a minuscule operating profit of Rs 105 crore in FY15-16, only for the Comptroller and Auditor General to puncture that lofty claim as well, which said that the reported operational profit did not represent the actual.

The national auditor also pointed out that apart from FY16, there was a massive understatement of financial losses for FY13,14 and 15, which, on an accumulated basis, stood at Rs 6,412 crore. The road to hell, they say, is paved with good intentions and that exactly is the fate that befell Air India. It was the UPA-II government which scripted the eventual crash and burn of the carrier by granting an approval for its merger with Indian Airlines. It will come as surprise to many readers that Air India made a profit every year from FY01 to FY07.

However, once the merger of the two entities saw the light of the day in FY08, the losses of the merged entity started mounting to reach the incredible levels of today. Now, the CBI has registered three FIRs and has started its preliminary inquiry into several issues that set the airline on its ill-fated course. At a time, when the carrier was making a profit of Rs 100 crore, the aviation ministry chose to burden it with a debt of Rs 44,000 crore by purchasing 111 aircrafts. This flew in the face of an internal Air India report which suggested that the company should lease aircrafts and not purchase them. However, the report was side-stepped. Going ahead, the government can choose to write off that part of Air India’s debt that is not backed by collateral. That could find favour with many potential investors.