The government is looking at privatising debt-ridden Air India. Illustration: India Today/Nilanjan Das

Reports of Tata Sons considering to buy a controlling stake in Air India have got many saying that the Narendra Modi government is doing what should have been done ages ago--privatisation of the loss-making national carrier.

Air India's share in the domestic aviation market is a mere 14 per cent with Indigo and Jet Airways enjoying the lion's share.

In the international aviation sector--once considered a strength of Air India--the profit margins are receding.

The national carrier's current losses stand at a staggering Rs 52,000 crore.

In a scenario like this, when Finance Minister Arun Jaitley told Doordarshan that "if 86 per cent of flying can be handled by the private sector, it can handle 100 percent", no one was surprised.

Niti Aayog, the government's think tank, has already recommended strategic disinvestment of Air India and the Cabinet is expected to take up the subject for discussion soon.

Before the government decides to sell Air India to the Tata Sons or any other interested buyer, we take a look at some of the factors that led to the downfall of Air India.

GOING ON AN ACQUISITION SPREE

The Atal Bihari Vajpayee government was in favour of privatisation of both Air India and Indian Airlines and had tasked the Naresh Chandra Committee in 2003 to study options. The committee in its report suggested privatisation of both the airlines an creation of and autonomous civil aviation regulator.

However, when the UPA-1 government under Manmohan Singh came to power, then aviation minister Praful Patel pushed for modernisation of the fleet. The Naresh Chandra report was shelved.

The government instead acquired 111 aircraft at an expense of Rs 70,000 crore--the Air India signed a purchase agreement with Boeing for supply of 50 aircraft at a cost of Rs 33,197 crore. The idea was to fund the acquisitions through debt and repay through revenue generation.

A subsequent report by the Comptroller and Auditor General (CAG) of India found this idea unreal and called it a "recipe for disaster".

CBI's FIR in May 2017 charged Praful Patel and unnamed officials with ordering purchases without transparency, causing immense loss to the exchequer.

Air India's many assets. Source: India Today. Air India's many assets. Source: India Today.

MERGING AIR INDIA AND INDIAN AIRLINES

Soon after the large-scale acquisition of aircraft for Air India and Indian Airlines, the UPA government decided to merge the two airlines in 2007 to bring in more "synergy". The result was disastrous and the losses mounted.

In 2002-03, the combined losses for Air India and Indian Airlines were Rs 63 crore which rose to nearly Rs 7,000 crore in 2010-11.

The CAG report was critical of the UPA government's decision and observed that it would have been better to have worked out the merger before making the acquisition. In just five years, the combined Air India-Indian Airlines entity piled up a debt of Rs 20,000 crore.

The current Air India chairman Ashwani Lohani had recently blamed the merger for the national carrier's "downfall".

A TURNAROUND PLAN THAT DIDN'T WORK

In 2011, the UPA-II government decided to pump in an equity of Rs 48,212 crore for a period of 20 years starting 2011-12 and ending in 2031-32 to stop Air India from bleeding.

Air India was expected to show positive earnings from the financial year and a cash surplus from 2017 onwards. The opposite happened. Air India's inability to service the annual interest payments led to the losses mounting to Rs 52,000 crore this year.

In the meantime, the national carrier had exhausted the Rs 25,000 crore committed under the turnaround plan.

LEASING AIRCRAFT, INCURRING LOSSES

The Central Bureau of Investigation (CBI) has raised charges of irregular leasing of aircraft by Air India without due consideration, a proper route study and marketing-pricing strategy.

"It was alleged that the aircraft were leased even while aircraft acquisition programme was going on," CBI spokesperson R K Gaur said after the agency registered three FIRs and a preliminary enquiry to probe the controversial decisions made by the Manmohan Singh government

According to CAG, the estimated losses from leasing of aircraft stood at Rs 405.8 crore between March 2011 and May 2014.

How Air India performs against competitors like Indigo. Source: India Today. How Air India performs against competitors like Indigo. Source: India Today.

SELLING AIRCRAFT FOR A LOWER PRICE

According to the CAG report tabled in Parliament in March 20017, Air India incurred a loss of more than Rs 671 crore by selling five Boeing 777-200 long-range aircraft to Etihad below cost price.

Air India sold these five Boeing to Gulf carrier Etihad for USD 336.5 million, which comes to roughly USD 67.3 million per plane.

According to CAG, the aircraft were sold a price lower than the indicative market price of USD 86-92 million per aircraft obtained from two parties, M/s AVITAS and M/s ASCENT.

The losses mount when one adds the interest paid on loans to procure these aircraft which stands at Rs 324.6 crore.

Only 17 of the airline's services recovered costs in 2015-16 while 36 services ran into losses.

READ THE DETAILED STORY: The endgame

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