As agitating Air India pilots refuse to relent, Aviation Minister Ajit Singh said that privatisation could be the only way to save the national carrier. Speaking to Karan Thapar on Devil's Advocate, he hinted looking at that option once the airline becomes viable.
Karan Thapar: Hello and welcome to Devil's Advocate. With the Air India polite strike continues, we ask how did the airline get into this unholy mess. That's the key issue, I should explore today with the Civil Aviation Minister, Mr Ajit Singh.
Mr Singh, lets start with the beginning. In 2007 the UPA government merged two airlines with entirely different pay scales, work conditions and areas of operation. As a result, there were two airlines with entirely different cultures and ways of doing things. Would you accept this was by no means an ideal merger?
Ajit Singh: We are now looking at retrospect, at that point in time they thought there may be lot of synergies, they thought they will save money in buying fuels, they will have the same marketing force. So I don't know what the circumstances were but looking at it now, it definitely hasn't worked out. And another reason may be even the merger haven't taken place in many areas.
Karan Thapar:In fact I would come to the second issue merger not taking place. But let me first explore what you had first told in the beginning, the merger hasn't worked out. You accept that?
Ajit Singh: Yes, in retrospect it's seems like and as you pointed out, they have different pay scales, different areas of operations and different culture.
Karan Thapar: So would you also then say that the merger was a mistake?
Ajit Singh: If you go back and if you look at the mergers in the US and other places, there are lot of mergers that are failed. So there could be many other reasons of failure.
Karan Thapar: Quite right. So this is one of many mergers that hasn't succeeded?
Ajit Singh: It hasn't worked out. As people at that time might have thought and ofcourse it's true that up to 2005 both these companies were making profits. Now this years and last years the losses would be around Rs 9000 crore.
Karan Thapar:Quite right, so the merger hasn't worked out. You are saying something as well, two companies that when they were separate were making profit. Now they have been merged, actually making a loss.
Ajit Singh: But the whole has also changed, if you look across the whole airlines industry is in trouble.
Karan Thapar:Let go back and try and look at the various stages where problem came up. You began by admitting that the merger hasn't worked out, you began by accepting this wasn't a ideal merger.
Ajit Singh: No, I only said, at that time I don't know what the circumstances were. In retrospect, we can say that it hasn't worked out.
Karan Thapar:Quite right, in retrospect we can say that it hasn't worked out . Second even if after five years, the two airlines operate as separate entities under the single name. For instance you have two sets of pilot, you have two sets of cabin crew, you even have two directors of engineering. No real effort has been made over five years to implement the merger?
Ajit Singh: See, what I have come to know is about 70 per cent what should have happened in merger has taken place. ITs and many areas marketing force has been merge but that key area, different pilot cabin crew, engineers working on this to different airlines, HR area basically hasn't yet been merged and that's why the Dharmadhikari committee was appointed.
Karan Thapar:Quite right. So you accept that in the key areas of cabin crew pilots and engineers, the merger hasn't happened?
Ajit Singh: It hasn't happened.
Karan Thapar:Infact a third problem, where attempts were made to create a merger in these key areas, it happened either half-heartedly or it happened irrationally. Let me give u an example, the airline has insisted that both India airlines pilots as well as Air India pilots must be trained for the Dreamliner. But they are not implementing that principle either for engineering staff or for the cabinet crew, so it happened half-heartedly and irrationally.
Ajit Singh: See, the pilot training in wide or narrow body, is entirely a separate ways.
Karan Thapar:But it would be logical to have engineering staff training as well.
Ajit Singh: Pardon, for cabin crew I don't think that would be problem.
Karan Thapar:But what about engineering staff?
Ajit Singh: Engineering also, going across these lines, is much easier then it is for the pilots.
Karan Thapar:Except it would be rational and logical, if you are training pilots for both streams for Dreamliner, if you were also then to trainee engineering staff across the line for the same function.
Ajit Singh: See, you are right. Even for the pilots, I am saying it's difficult they had different streams and all that. But it doesn't mean that it shouldn't have happened and it couldn't have happened.
Karan Thapar:Let's pause for a moment and consider in some detail the decision that the both Indian Airline and Air India pilots will be trained for the Dreamliner. In the case of Air India pilots because of their experience on the 747 and 777, they require under ten days to train on Dreamliner. In the case of Indian pilot because their training basically in the Airbus which is completely different plane, they require 30 to 35 days of training. At a time when you cumulative losses are touching Rs 25000 crore, this insistence on 50-50, is only adding to your cost and it is only causing further time delays. Is it wise?
Ajit Singh: Listen, basically at this point in time you are saying, we decide whether we undo the merger and keep on with it. If we are going keep on with the merger then we will have to cross check. Ultimately there will be one pilot profession, they will be trained in line and all that, but doesn't mean that will have two entirely different progress path, pay scales and all that.
Karan Thapar:So you are saying a very important thing. You are saying one consequence of the merger, is that the hidden cost, they are hidden any longer . I referred to, have to be born, you have to accept them otherwise the merger makes more sense.
Ajit Singh: No no. You are saying hidden cost but then also say that the then trained from this and transfer to them. It still may have some advantages some times, so don't say that it will cost more.
Karan Thapar:Except that there is a contradiction, if it make sense to train pilots from both streams for the Dreamliner. Why does it not make sense at the same time to train engineering staff from both?
Ajit Singh: Yes, we are planning even pilots, not only Dreamliner. We have studied the Dharmadhikari report and we will be training pilots on both sides.
Karan Thapar:But do you say what I am pointing, I am saying to you that the third problem. Even where attempts have been made to create a merge airline, the attempts are half-hearted or irrational or they are contradictory. Pilots have been trained from both streams, engineering staffs have being kept separate, cabinet crew have been separate. Instead of doing all together and making it a united merger, there is attempt of merger in one area but separation in another.
Ajit Singh: Mr Karan Thapar, we are all agree that merger hasn't progressed and hasn't happened as it should have. But at this point in time, we have to decide how to implement the Dharmadhikari report which takes care most of these problems.
Karan Thapar:You know you keep referring the Dharmadhikari report, it's not made publicly as yet. So I have to point out for the audience that you have an advantage that you know its content that rests of us don't. But let me put this to you, even where training is happening for the Dreamliner, it's not necessarily happening in the most rational way. You have in Bombay, a simulator that has been lying ideal, I am told for five months because you don't have the instructor. In the mean time, the airline is paying lot of money to send pilots to Singapore?
Ajit Singh: Mr Karan Thapar, if you want to look at to these issues, there are many problems like that. The expenses are going up as you said training should hasn't been done. All these issues are there and they are one of the reasons not the solo reason for this problem that Air India is going through.
Karan Thapar:But you know this sort of problem which you acknowledged and accept, suggest that there is no planning, there is no rational thinking. And the decisions have been made in an ad-hoc and uninstructed way, that is a disaster for an airline that needs to merge two different entities which are perhaps not really ready for merger.
Ajit Singh: All I can say is, when did you decided on merger by now merger have should taken place.
Karan Thapar:Why didn't it take place. Did they not think these problems through?
Ajit Singh: Well I can say what problems they had and what they did try and didn't work. I am no position to say that.
Karan Thapar:Absolutely. Because you won't minister, you became minister just under five months ago. But what we are saying is that your predecessor and the management of the airlines in the last five years simply wasn't up to the challenge, they didn't know how to handle it.
Ajit Singh: Mr Karan Thapar we are not here to indict the management of past and present. Here we are discussing is the problem with the airlines is, the merger didn't takes place we know. Obviously the merger didn't take place as plane something must have gone wrong.
Karan Thapar:Something very big?
Ajit Singh: Something have gone wrong, now we are not inquiring in that. CAG does some enquiring, PAC is looking at those reports.
Karan Thapar:Interesting that you should mention the CAG because that's another problem that I was going to come on to in a moment's time that bedeviled the merger and has caused the serious problem for Air India. The CAG points out that the government saddled Air India with 68 aircraft at a cost of Rs 40000 crore on the false assumption that increasing capacity could increase market share, while contradictorily at the same time handing over bilateral and thus undermining the case of having new plans. People look at this and says this is not just bizarre, it is inexplicable
Ajit Singh: Well, I say for long time they hadn't got any plans and that was a complaint also. They should have periodically updated their fleet but then they bought it at one time and those questions have been raised and what can I say now. And if you look at it now what we are trying to do with Dreamliner is that buy and lease, sell and lease.
Karan Thapar:So that you don't have the burden of the cost?
Ajit Singh: Capital expenditure is not that high.
Karan Thapar:Quite right. So you are now trying to find ways out of the commitment made by your predecessors because you accept that those commitment made in airlines purchases were mistaken. They happened in to bigger number, they happened altogether and the worst thing is, they happened at the time when you are giving away bilateral. So you are buying plans to take to take passengers while giving away the rights to take passengers.
Ajit Singh: Mr Karan Thapar, my job is to see and look at the current situation, see what we can do. Of course, learnt from what went wrong and see to make Air India succeed.
Karan Thapar:Absolutely, you have perhaps the most difficult job in the country because, you having at the same time to put right and unholiness without. And I can understand, wanting to blame the your predecessor who created it but you have to defend them for the mistake they made. Yet correct the mistake they made and smile and get on the job, it's a terrible job you have.
Ajit Singh: Mr Karan Thapar, the mistakes they made or not or what they did, is right or wrong. I think you should talk to them also.
Karan Thapar:Absolutely . But let me come to one further mistake which perhaps of the worst of them. You predecessor attempted to put together the most challenging merger of all without putting place in management that could handled the challenge. Instead of appointing Civil Aviation professionals to run the airlines, they kept sending joint secretaries from the IAS. Who have no idea how to run a business, leave aside a specialised service industry like an airline.
Ajit Singh: Well, I do agree with you on one point, it's very difficult to run service industry. Because in service industry to succeed, your culture has to be customer skin, government servant culture is not included in their culture.
Karan Thapar:So why then after creating this challenge merger, why IAS joint secretaries being sent to run the airline, rather then find professionals?
Ajit Singh: Well that is what government is decided so far.
Karan Thapar:The funny thing is one brief instance when you predecessor did appoint a civil aviation professional. I am talking about ? who made chief operating. officer. He last it just for nine months when he was sacked and he was sacked because people thought he was objecting to political interference?
Ajit Singh: Let me point out one more thing, when we are talking why government doesn't succeed in service industry, it's not one appointment two appointment, managing director or commercial director, that won't help. Top to bottom, the culture in a government PSU, Government Company, government appointee, is entirely different what you need in service industry. So if you think just by appointing one officer whatever level, you can turned around and change the whole culture of the PSU and succeed in service industry. I am sorry you have to rethink.
Karan Thapar:In which case minister, the obvious question is this. Do you believe the time has come for the Government of India, to boldly and bluntly say that our ultimate intention is to privatise Air India? And all the revival plans were putting in the place today, are with a view to eventual privatisation. Because the government has no business running an airline.
Ajit Singh: See, first we have to put Air India on right track, make it viable. And then when you look around you note the days of national carrier are gone. Any country you look at, those days when national carrier was reality, are no longer there. So those facts are with the government, we all know that but our priority was, our whole effort is to make Air India, a viable entity.
Karan Thapar:But in the second half what you said , I am going to pick up. You said the days of national carrier being run by the government, are no longer there, they are no longer viable. Are you therefore suggesting that infact once you make this airline viable, you will privatise it?
Ajit Singh: At this point of time we are not looking at that, what we are looking at in. And don't forget that yes it is difficult for the government to run a service industry but if you look back upto 2005 Air India and Airlines were still government entities and they were making money. So it's not impossible and it's not beyond the realm of possibility, that government cannot run service industry. Most likely as I said, it's difficult but let's try the difficult thing.
Karan Thapar: I am going to try and explore that difficulty, by pointing out a particularly fact to you. As you said before merger both Indian Airlines and Air India were making a profit, after merger and the merger only five year old, their combined losses was over Rs 25000 crore, their combine debt is over Rs 50,0000 crore while their market share has sunk to under 17 per cent.
Ajit Singh: Mr Karan Thapar remember one more thing, in those days Air India and Indian airlines had a monopoly almost. Now it's in a very competitive environment and overall situation for the aviation sector has also become very difficult.
Karan Thapar: Except let me point this out to you before merger the combined turnover of both the airlines was just under Rs 17,000 crore but today it's under Rs 13,000 crore. It's has fallen by over 20 per cent that's despite you have got new planes, that's despite the fact that airline market as a whole has grown. So you are shrinking in size and the reason comes back to the one you are talking about, should the government be running a service industry like an airline?
Ajit Singh: Mr Karan Thapar we need not discuss that Air India as a present entity is in trouble and we also should remember that all other airlines, not to that extent, but they are also in trouble, financially stressed. And the whole environment even if you look at it worldwide, most airlines companies are in trouble. So I accept your point that yes in retrospect that merger didn't pan out but you can't blame everything, today's situation on just that fact.
Karan Thapar: Minister I want to start this part by putting a fundamental question to you and in a sense you hinted at it right through part one but we now are going to address it upfront. Your first task you said is to revive this airline. You have already in April committed to a debt restructuring of Rs 18,000 crore and you have also committed yourself to infusion of new equity of Rs 30,000 crore over eight years. But unless you can put in place a proper commercial management and give them freedom to run the airline as they want, you are simply pouring good money down the drain. So will you put proper commercial management in place? That's the first question.
Ajit Singh: First let me tell you that we are not putting that money, Rs 30,000 crore, down the drain.
Karan Thapar: It will be if you don't have proper managers.
Ajit Singh: We have timelines, we have very strict set of performance standards and if those performance standards are not met the whole plan will be reviewed in every point in time.
Karan Thapar: But you can't achieve those performance standards with IAS, joint secretaries running the airline. You know that, I know that so my question still remains, will you put proper management in place?
Ajit Singh: As I said before there are many PSUs which are doing well.
Karan Thapar: But this is a PSU which is doing badly.
Ajit Singh: I do agree it's very difficult, let me repeat it. I'll say it again that service industry is very difficult to run by the government, yes. But before merger they were both government entities and they were running successfully. So this is not the only…
Karan Thapar: You can't turn the clock back to the pre-merger, you know that and I know that.
Ajit Singh: All I am saying is even private airlines run by the professionals are failing. So don't put that emphasis that is because the government managers are incapable they can't run anything. No, look at the private companies, why are they failing? They are all run by professionals.
Karan Thapar: At the end of the day the private companies are accountable to their shareholders and at the end of the day shareholders take decision.
Ajit Singh: No we are not discussing that. Yes that is a different thing. Your point is put a professional management then it will work.
Karan Thapar: Will you do that?
Ajit Singh: You are saying put a professional management then it will work.
Karan Thapar: I am not saying that it will work but it will have a better chance of working.
Ajit Singh: Look at the private companies, look at the private airlines.
Karan Thapar: So you are saying that you will not?
Ajit Singh: No, I am not saying that but your whole emphasis that because it's IAS, because it's a government company that's why it's in this shape. Look around you in India only look at the private companies with professional management, so if a company fails there are many reasons.
Karan Thapar: Minister I have run out of time but I have to conclude one thing.
Ajit Singh: Yes.
Karan Thapar: You hinted in part one a possibility, a need for privatization but only after you have revived the airline but you didn't commit to yourself to it but you said it's not on the agenda right now. But when you talk of reviving the airlines we talk about money but we don't talk about good professional management so I doubt if you are going to revive it at all.
Ajit Singh: I am not saying that we will not have good management or we don't have good management at present and I also pointed out to you that puting one or two guys from a totally different environment with the working environment that the government has, then you are mistaken.
Karan Thapar: Alright minister I will leave it to the audience to decide whether you have the confidence strategy to succeed or you have the money but you don't have the clear mind about the management and whether this confusion will ensure that the troubles at Air India continues. That's a question the audience will have to answer.
Ajit Singh: Mr Karan Thapar whatever I have in mind, the whole thing you have no clue. So don't say that.
Karan Thapar: I will wait to hear greater details from you, so there is a hope that there is more to come that you haven't revealed yet.
Ajit Singh: And as I said our main effort is to make Air India a success whatever has to be done and your suggestions will be welcomed.
Karan Thapar: Minister, thank you very much.