Unto dust

EDITORIAL

The government’s decision to once again restructure bank loans of the perennially troubled Air India is yet another futile exercise that will yield no long-term benefit to the government, the banks or the airline itself. It appears that the decision to continuously pump funds is influenced more by the so-called nationalistic pride of maintaining a national flag carrier. Today this is not only irrelevant but does not have economic logic. The decision to issue bonds worth Rs 7,400 crore to various banks under the restructuring exercise will do little other than increase the interest burden in the government’s balance sheet that it will be forced to carry year after year. The only short-term benefit that will accrue to banks is that it will help them window-dress their balance sheets. And at some point they may be able to convince the Reserve Bank of India to treat these sovereign guaranteed bonds as part of their investment obligations in government securities. So, an otherwise worthless debt paper will be treated at par with other government securities. For these banks, converting part of their loans to 10-year-plus debt will amount to postponing trouble to a later date. Given the cash flow problems faced by Air India, even such long-term debt will come up for further restructuring sooner rather than later. The government’s attempt to keep a white elephant afloat betrays its futile attempt at financial re-engineering. It is not going to help the troubled airline regain viability, given the host of legacy issues peculiar only to the airline that neither the government nor successive managements have been able to sort out in the carrier’s long and uneventful past. The government must appreciate that globally the airline business is a loss-making proposition. At best, there are phases when a few efficient airlines make money that sustain them during lean periods. On its part, Air India has failed to generate cash even in the best of times. Financials of large global airlines clearly reveal that they are cash guzzlers and hardly ever post any returns for their shareholders. The government will continue to bleed as the only shareholder in Air India until and unless it adopts radical measures and live with the attendant consequences. The airline needs to drastically trim its workforce, which seems a difficult task given the clout of Air India’s unions. The airline also needs to substantially reduce the perks and benefits enjoyed by its present and retired employees in order to bring operational costs under control. In view of the fact that the airline is part of the hospitality business, recruitment procedures cannot be the same as in other public sector companies. It needs to employ smart, young staff for customer interface whether at check-in counters or inside aircraft as flight stewards and stewardesses. Any financial assistance to Air India can only work when it is accompanied by a major overhaul of its work culture. This can best be achieved by privatising the airline, or simply giving it a quiet burial, so that no more good cash is thrown in the hope of recovering bad money.