Aviation

Profitability inhibitors in global aviation market hurt interest in Air India, says Jayant Sinha

Updated : June 26, 2018 06:18 AM IST

"Air India's problems are really because of what the UPA government did during its 10 years in government," Sinha said.

The terms and conditions set by the government for the stake sale were balanced, Sinha added.

Minister of State for Civil Aviation, Jayant Sinha, in his first interview since the government's futile attempt at selling a 76% stake in the national carrier, said current global market conditions and industry dynamics did not make the government's divestiture in Air India lucrative.

The terms and conditions set by the government for the stake sale were balanced, Sinha said, and added that the centre's objective was to ensure that the carrier emerged as a globally competitive airline.

The minister, however, said he could not speculate as to why potential investors did not submit Expressions of Interest (EOI) for the maharaja, and added that the ministry had received the report from the transaction adviser for the divestment process.

He further added that the expert committee would monitor the situation and that the next step taken by the government would be whatever is in the national interest of the country.

Watch Here: Market conditions, industry dynamics curbed interest in Air India, says Jayant Sinha

Edited Excerpt:

Q: There was so much confidence that the government had as you walked into the Air India disinvestment process. However, the fact of the matter is not a single expression of interest (EOI) came through and an EOI is not binding. So one wonders as to why there was no interest even in putting an EOI in place. What seems to have gone wrong with the Air India disinvestment?

A: I really cannot speculate as to why potential bidders were not interested. However, we have received the report from the transaction adviser, and if you step back from that report and you really look at what is happening in the industry right now, the conclusion that one would come to is to say that market conditions and industry dynamics are such that today people would not be that enthused about the disinvestment process that was underway as far as Air India is concerned.

Of course if we look at how various airlines are doing around the world, particularly the full service carriers, you will see that higher oil prices, currency fluctuations, higher interest rates have sharply brought down profitability. So therefore the conclusion as industry watches that we would have to come to is that the EOI was not sufficiently of interest to various bidders.

Please recognise also and I think there is some confusion about this, please recognise that all we were asking for was an expression of interest; these were not binding bids, we were not even at the request for proposal (RFP) stage, we were a long way from the RFP stage.

All that the EOI required you to do was to put a viable consortia together and then come in and start taking a longer, harder look at all of the details and be somebody who had access to the data room. That is all that the EOI required.

Q: You said that you do not want to speculate on what seems to have done the Air India disinvestment in. You talked about challenging industry concerns, yes oil prices are a concern but let us be clear, anybody who is getting into the aviation business knows that oil price volatility is going to be something that they have to deal with. On the plus side, if you are talking about India being the third largest aviation market by 2020 and so on and so forth, surely that would have got somebody to put in an EOI. Now the reason I ask you this is because our feedback right through this process has been that the government retaining 24 percent was a deal breaker and I will tell why; because look at companies like Hindustan Zinc and BALCO, these were divested in the first tenure of the NDA government and the government continues to hold on to the residual stake that they hold in these companies and that is why potential bidders were wary of the government wanting to hold on to 24 percent.

A: There are many other instances that would argue exactly the opposite. For instance, if you look at the holdings that we have in some banks like Axis Bank and ICICI Bank, government has of course continued its passive financial stake, they have not interfered in any operational way with those companies. If you look at Maruti Suzuki for instance where government had a stake for a long period of time, eventually government did exit from those. So obviously there are arguments to be made on both sides.

At the end of the day, as far as the offer for sale, what he had put up in terms of terms and conditions for the sale are concerned, I think they were very balanced, they were taking into account all the various different stakeholder interest that we had to consider and therefore our objective of ensuring that Indians had an independent globally competitive airline which could fly long haul around the world, those being our overriding objectives were fully maintained through this very balanced offer for sale that we had put out.

Q: What now as far as Air India is concerned? Are you going to attempt to take the disinvestment process forward at this point? Will you rework the terms that had been put in place in the EOI or is the divestment off the table altogether for now. My second question and I will ask you this in the context of what we are already seeing with LIC potentially getting ownership of IDBI Bank, there have been reports suggesting that LIC could even be brought into Air India. Is that a realistic possibility?

A: I cannot speculate to the future. You understand the decision making process that has been established within the government for these kinds of situations, we have an executive committee of joint secretary’s, we have a core group on disinvestment which is chaired by the cabinet secretary, then we have a very senior group of ministers which is the Air India specific alternative mechanism that monitors the situation and then takes decisions. So we have multiple decision layers.

We will be monitoring the situation as we move forward and whatever is in the best national interest, you can be sure that all of these very accomplished and capable professionals and senior decision makers will make whatever is in the right national interest and take that forward.

Q: Including possibly bringing LIC onboard to fund Air India, has that been discussed in any fashion at all?

A: You are asking me once again to speculate. I have already told you what the decision making process is like. We are considering all alternatives that will be in the national interest and we will take them through the process and undertake those decisions that are the best for the people of India. Please be reassured of that.

Q: This also means that LIC could potentially be an answer to the problem that you have articulated because you are not saying no. You are saying you do not want to speculate but you are not saying whether or not this is in any form or fashion been discussed.

A: You are trying to pin me down and I will not be pinned down on those matters.

Q: What is the turnaround strategy for now; if the disinvestment is off the table for now, then what about fund infusion? Demands have been made by Air India for capital. What about cost cutting measures, you recently did a press conference where you spoke about what you could potentially do to overhaul the international operations where even with the lucrative routes that Air India has, you are losing market share. So, both in terms of capital requirements as well as the turnaround strategy, what can we expect?

A: Those are very many questions you are asking altogether. I will try and answer them as best as I can. You have to be very clear and I think all your viewers and the people of India have to be very clear about this is that the honorable prime minister, the honorable finance minister, everybody has been very clear in terms of what the objective is.

The objective is that we have to have an independent globally competitive airline that can serve domestic passengers and particularly international passengers well with direct convenient flights around the world. That is an overriding objective.

Now in pursuit of that overriding objective obviously we have been considering disinvestment alternatives, we have been considering a range of financing alternatives, and we have also been looking at a variety of initiatives that will improve operational efficiency, improve obviously our passenger revenues, and our loads and our yield factor.

So we are looking at all of that. It is in light of that that we just did a very important launch of the Maharaja Direct premium service that will substantially improve service quality, passenger experience particularly for first class and business class passengers and will enable us to continue to grow our market share in international routes.

Now just to be very clear about the market share point as well, as far as market share is concerned, obviously as far as international routes, we are really the market leader. We have been the market leader, we have been adding destinations and so our share has been growing quite nicely as far as international routes are concerned.

Domestic routes we have not been able to add to our fleet to the extent that we would like to particularly in light of the debt burden that we have and the fast growth in the marketplace. So we want to see what we can do to continue to add convenient connections to our unsurpassed global network that we have. Air India is very well positioned to be India’s long haul carrier and we want to really strengthen that competitive position as we go along.

So we are looking at all facets; as I said, we are looking at what we can do in terms of the disinvestment process, we are looking at what we can do in terms of the financial side of the equation as well as on the operational side. So all of those are issues that we are looking at and we are determined as I said to ensure that India has an independent globally competitive airline.

Q: My final question on Air India before I talk to you about other issues, what can we expect now, there has been a lot of talk on the fact that you will perhaps bring in outside expertise on to the board or even the management as far as Air India concerned. If you can break this up for me in terms of next steps and give me a timeline as well of when we should expect what to happen, especially when it comes to the fund infusion?

A: We are committed to strengthening every aspect of Air India’s position, its competitive position. As I said, whether it is financing, whether it is operations, whether it is passenger service, we are committed to ensuring that Air India thrives, prospers, and is really globally competitive in every way and those are all the steps that we are undertaking right now and this of course for us even as the disinvestment process is concerned, opens up many possibilities. So, that is in fact the way any owner would operate and that is the way we are operating as well.

You must understand that Air India's problems are really because of what the UPA government did during its 10 years in government. What has happened in terms of very high cost aircraft purchases, the international routes that Air India lost as well as a botched merger between Air India and Indian Airlines, these are the legacy issues that Air India is dealing with.

We have cleaned up a lot of those issues; Air India has gone through a tremendous operating turnaround. If you match it against any other full service carrier, you will see it is very much at benchmark levels. So we have really taken the airline forward, we have been pursuing this goal of building an independent globally competitive international airline, long haul airline and that is exactly what we intend to pursue as we move forward.

Q: Let me then talk to you about some of the other issues that are currently pending and hoping that a decision will be taken, it is not entirely in your hands but on the issue of ATF being brought under the GST ambit. I know that the civil aviation ministry has been pushing for it. How confident do you feel that while petroleum and fuel products altogether may take while that given the fact that this is a sensitive sector which hurts consumers if prices go up, do you feel that ATF being brought into the GST ambit is perhaps something that is likely to happen?

A: We are hopeful. Of course we have been engaging with the GST Council on multiple occasions as well as with the officials that are analyzing all of this through many rounds of discussions and we are hopeful that sooner rather than later the GST Council will take into account what consumers are dealing with right now as far as the taxation of ATF is concerned and that it will eventually be passed by the GST Council.

Again airlines, we are dealing with a situation where it is a very globally competitive industry and we want to make sure that our airlines are as well positioned to compete with everybody around the world that we possibly can and for that getting ATF into GST is a very important step.

Q: On the infrastructure side and we have had several conversations on this in the past and you have been mooting the idea of setting up a second airport in at least some of the major cities. Navi Mumbai has now been delayed, I think chief minister of Maharashtra, Devendra Fadnavis has said that it is likely to now be 2020 if not later, but 2020 is the timeline the state government is working with. What is the story as far as building out the infrastructure is concerned realistically today?

A: We are massively building out the infrastructure. As you know, we have Rs 1 lakh crore committed for airport capacity over the next five years and this of course includes greenfield airports in Jewar, Navi Mumbai, Mopa in Goa, it includes Purandar in Pune. So we have got a whole host of greenfield airports coming in. There are actually 14 greenfield airports that we have right now that are in the pipeline.

We have 12 major airports like Patna, like Lucknow, like Chennai where we are building new terminals that will substantially increase capacity as well and that also will certainly have on-line in the five years. So we have got a tremendous sort of capacity expansion program underway called NABH Nirman, NextGen Airports for Bharat that will soon show us results, certainly in the next five years.

Of course the challenge for the aviation network in India is that our two major airports which are Delhi and Mumbai are the ones where we see the most bottlenecks. Delhi of course is going to see significant capacity expansions at Indira Gandhi International Airport because we are increasing the number of slots that are available from about 70ish right now to almost a 100 in the next couple of years.

So that whole program is underway. Of course we are rebuilding Terminal-I and then we will tear down Terminal-II and get to a new Terminal-IV. So there is plenty of capacity that is going to be coming in as far as Delhi is concerned.

As far as Mumbai is concerned, we all know the issues there. We have a single runway in that airport. It is the most efficient airport in the world right now, single runway, 1,000 flights a day, there is nobody else that can match that. Nonetheless, we will have to deal with the situation in Mumbai until Navi Mumbai comes along which of course the chief minister as you were saying has said will take till 2020. So, this is the situation we are dealing with. In Mumbai that is the one real bottleneck we have till 2020, till Navi Mumbai comes along.

However everywhere else in India, we are adding capacity at a very fast pace. I will also add the following which is that if you look at Mumbai and you look at airports around Mumbai such as Surat, Pune, Goa, we are adding very substantial capacity there as well and because we are adding capacity in all these airports around Mumbai, we are drawing some of the load away from Mumbai and to these other cities as well. By doing so we will try and ease the situation in Mumbai also.

Profitability inhibitors in global aviation market hurt interest in Air India, says Jayant Sinha

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