AI - recipe for a national disaster
11 Nov. 2012 11:48 PM IST
When the country is struggling with how to acquire more land - mostly agricultural - for the industry and is grappling to tailor a Land Acquisition Bill, the supposedly national carrier Air India mulls over selling prime land to earn a mere Rs 5,000 crore. It is also planning to burden the public sector banks with Rs 7400 crore bond purchase.
The land it proposes to sell was acquired by the government. Even in those days, when land acquisition was not so volatile an issue as it is today, the government had to face many problems and protests in the acquisition of land.
The land does not belong to Air India, though it was vested with it. How can it sell it? If it is surplus land it must go back to the government so that it could be utilised for other industrial and commercial purposes. A company set up by the government cannot be allowed to sell prime land and properties. The advice has been given to it by property consultants. Jones Lang Lasalle has emerged as the frontrunner among three other bidder consultants like DTZ and Cushman and Wakefield to advise the airline on the sale process.
The consultants themselves would certainly have a stake in such sales - through the advice they have provided, sales commission and also being the likely buyers - direct or indirect of AI properties.
The AI is proposing to sell and lease out its prime properties measuring roughly 76.30 lakh sq ft or 175 acres in Delhi, Mumbai and Chennai.
The national carrier is also contemplating selling a 25,000-sq-ft commercial building it owns on Poyle Road in London and two flats admeasuring nearly 3,000 sq ft in Tokyo.
In Mumbai, the airline owns approximately over 20 lakh sq ft, of which 14 lakh sq ft is in Nerul, housing AI staff quarters. The balance area is divided into six residential plots used also used as staff quarters at Kandivli, a prime residential building in Bandra and a Lonavla holiday home.
The airline is set to open bids to lease approximately 2 lakh sq ft spread across 12 floors in the iconic 22-floor Air India building in downtown Nariman Point.
Scrutiny of the list suggests that the company had invested in many of these properties just to project that it was the “maharaja” and could do whatever it wanted. Since its nationalisation decades back, the airlines has hardly had actual profit.
Even in Novemeber 2010 it said it had earned cash profit of Rs 2,166 crore , and termed it as “record in recent times”. How could it plunge into Rs 20,000 crore losses soon after? There is Rs 40,000 crore debt too.
It calls for a probe for misleading the country. Air India had reported a net loss of Rs 5,550 crore in 2009-10. On December 30, 2009, the cabinet approved an equity infusion of Rs 1200 crore. But its losses went on mounting.
Even now any further infusion of money either through sale of land and property or debt is not likely to bring the airlines back to health.
It is sailing from crisis to crisis and now may become a national disaster. Its decisions had mostly not been on professional considerations. Some years back IT industry had asked it to run direct flights from US and Europe to Bangalore as clients were reluctant to come otherwise. Air India refused saying it was not a priority. The IT industry then asked the government to allow overseas airlines to provide the connections.
From the ministry prompt came the reply that it was their prerogative to decide and the IT industry was not right in championing the cause of overseas airlines. In short, saying their objective was protecting Air India, not consumers.
Air India is a classic case of how officials, who normally dither on decision-making could muddle. If Air India has become the national burden, it is because of them. Even now their approach on selling its assets is not based on logic.
It would be peanuts for a company which is in Rs 60,000 crore mess.
Nation’s property would be handed over for a song. Logically the government is the stakeholder and this could go back to the government - may be to vest in the proposed land bank to make a beginning.
The concept of a national carrier has been given up by most of the world. The country needs to consider whether a “national carrier” that bleeds the country is a necessity. The world over airlines are running either on thin margins or are passing through crisis of one sort or another for the past many decades.
The nation needs air connectivity. It should not be concern of anyone who runs it. It was inappropriately advised that only 49 per cent foreign investment could be allowed in airlines. This is a high risk industry. The nation needs to save its resources. Allowing 100 per cent foreign investment would be prudent in this sector.
The government should come out of this business. Ministers and officials could travel any other mode. But they need the national carrier for many freebees for themselves and their near and dear ones.
Acquisition of aircraft had seen controversies. It remains a fact that the carrier was rarely run professionally.
The accumulated losses and debt is becoming too burdensome for the country. It plans to mount the country with far more debt by inviting banks to bid for underwriting roles in a sale of Rs 7400 crore government-guaranteed bonds, according to a document released by Reuters recently. It would be the biggest corporate bond sale guaranteed by the government, and is part of India’s commitment to resuscitate the carrier through a $5.8 billion government bailout.
Despite the size, market experts say Air India will not struggle to sell the 19-year bonds. The majority of the issue will go to the hands of big institutions like the public sector banks and insurers as it has a central government guarantee.It is a dangerous proposition. The mismanaged bleeding company would be bailed out with public money without a guarantee it could ever profitably operate.
The solution is not difficult. It needs to be either leased out or sold to anyone who wants to run it. Since everyone wants to have a pie in its “fortune”, the bureaucrats would not like to part with it. But the nation has to take a conscience decision whether it wants to suffer for a critically ailing airline or utilise that money to resuscitate an economy going downhill.