Air India Has Turned Profitable and That's Got Me Worried - Vivek Kaul's Diary
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Air India Has Turned Profitable and That's Got Me Worried

May 11, 2016

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Air India, the airline owned and run by the government, has made an operational profit of Rs 8 crore during 2015-2016.

The minister of civil aviation, Ashok Gajpathi Raju, said this in the Lok Sabha last week. The airline was able to cut operational expenses by almost 11% during the course of the year, the minister added.

For an airline which has been facing huge losses over the years, this is good news. Take the look at the following

Year Loss (in Rs crore)
2014-2015 5,859.10
2013-2014 6,279.60
2012-2013 5,490.10
2011-2012 7,559.70
2010-2011 6,865.20
32,053.70

Source: Public Sector Enterprises Survey

Between 2010-2011 and 2014-2015, the airline faced total losses of a whopping Rs 32,053.7 crore. In fact, even in 2015-2016, the airline is expected to make a net loss of Rs 2,636 crore, though operationally it has made a profit.

Having said that, an operational profit of Rs 8 crore will now be used as an excuse to keep the airline running. In the years to come, more money is likely to go down the drain in trying to keep the airline up and running. In fact, the minister of state for civil aviation Mahesh Sharma told the Rajya Sabha yesterday that the government has no plans disinvesting Air India.


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It is important to ask here as to why Air India made a profit in 2015-2016, after having lost loads of money in the previous years. One reason as Raju pointed out in the Lok Sabha has been operational efficiency.

What the minister did not say was that a major reason for the turnaround has been lower oil prices. In May 2015, the jet fuel price was $1.84 per gallon. By March 2016, this had fallen to $1.07 per gallon. In fact, the price was even lower at $0.93 per gallon in January 2016.

A March 2016 PTI report quotes an Air India official as saying that in 2015-2016, the fuel bill of the company would be around Rs 5,700 crore, which would be lower in comparison to the Rs 8,200 crore bill that the company ran up in 2014-2015.

Further, the Mint newspaper quotes aerospace journalist Hormuz P. Mama as saying: "I feel that Air India's improved performance is almost entirely due to the very low jet fuel prices. There does not seem to be much of a turnaround effort in place."

The jet fuel price is beyond the control of the Air India management. When the price starts to go up again, Air India will be back to making losses. But then the taxpayer is always there to foot the bill. Also, it needs to be pointed out here that as on March 2015, the airline already had a debt of Rs 51,367 crore. The airline was also given a lifeline of Rs 30, 231 crore lifeline by the government in 2012.

Air India is a symbol of all the taxpayer money that the government wastes to keep loss making public sector enterprises going. In fact, when it comes to the quantum of losses Air India is number two behind Bharat Sanchar Nigam Ltd, which made losses of a whopping Rs 8,234.09 crore in 2014-2015. The company has made losses of Rs 23,138 crore between 2012-2013 and 2014-2015.


As the Public Sector Enterprises Survey 2014-2015 points out: "Amongst the top ten loss making companies, Bharat Sanchar Nigam Ltd., Air India Ltd., and Mahanagar Telephone Nigam Ltd. were the top three loss making CPSEs during 2014-15. The top ten loss making companies claimed 85.45% of the total losses made by all the (77) CPSEs during the year. The top three loss making CPSEs namely, Bharat Sanchar Nigam Ltd, Air India Ltd. and Mahanagar Telephone Nigam Ltd incurred a loss equal to 62.09% of the total loss of all loss making central public sector enterprises in 2014-15."

These losses are borne by the Indian government. In fact, if you look at the table carefully, the fourth largest losses of Rs 2,164 crore were made by a company which makes photo films. Yes, you read it right.

Why should this government or for that matter any government lose more than Rs 2,000 crore in a year, making a product, which doesn't have any utility left in this day and age? I really don't have an answer for that.

It isn't exactly that the government of India is floating around with a lot of money at its disposal. To give you a sense of comparison, India's agriculture budget in 2015-2016 was Rs Rs 15,809 crore. This was lower than the total losses faced by the seventy-seven public sector enterprises.

In fact, it was lower than the total losses of Rs 16,987 crore faced by the top three loss making enterprises-Bharat Sanchar Nigam Ltd, Air India and Mahanagar Telecom Nigam Ltd. Now who needs more money? Indian agriculture or the few lakh employees employed by these loss making firms?

Hence, the government spends thousands of crores of rupees every year to keep running the loss-making companies, in order to sustain the livelihood of around 2.5 lakh people working in these companies.

The question is why is the government mollycoddling 0.02% of the nation's population, when the money going towards sustaining the losses of these companies can easily be better utilised somewhere else.

This is basically a crime in a country as poor as India is. As Bill Bonner writes in Hormegeddon-How Too Much of a Good Thing Leads To Disaster: "As a society grows richer it can afford more illusions, more entertainments, more re-distribution of wealth, more regulation, higher taxes, and more unproductive people."

Right now India cannot afford the huge bunch of unproductive people working at public sector enterprises being subsidised by the government. Further, every rupee that goes towards sustaining these companies is taken away from something else.

Of course, loss-making or not, every minister likes a few public sector enterprises under him. Take the case of the Civil Aviation minister, how much value would he have with Air India not continuing to be government owned? Or how much value would the telecom minister have without MTNL and BSNL, the two government owned telecom companies, continuing to be government owned.

Hence, understandably there is a resistance at the level of ministers in the government as well as bureaucrats, to the entire idea of privatisation. But then in economics there are no free lunches, and someone has to pay for it.

Postscript: In the original column I had said that an operational profit of Rs 8 crore would mean that the government will not have to pump any more money into Air India. That is incorrect. The airline has made a net loss of Rs 2,636 crore in 2015-2016, which means taxpayer money will go into the airline and which actually makes the situation much worse, with almost all the drop in losses coming in from the savings on fuel costs.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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8 Responses to "Air India Has Turned Profitable and That's Got Me Worried"

Sujit Patwardhan

May 21, 2016

Instead of merely highlighting how Air India (and other Government run companies) have been making whopping losses year after year and saying that the losses are being sustained just to keep the workers on the payroll at the cost of the taxpayers, wouldn't it put things in perspective to also add up the huge amounts of subsidies given out by the Government to corporate firms, plus the non-performing assets of National Banks representing losses made by lending to borrowing corporate firms that continue NOT to pay back their loans on account of immunity they enjoy from their close relationship with the Government and juxtapose that with our Agricultural Budget. After all these huge amounts will also ultimately be borne by the taxpayers whose loss won't be any sweeter because it was caused by Corporates rather than by Government run enterprises.

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Mangesh Kokatay

May 18, 2016

The erstwhile civil aviation minister in UPA regime is responsible for the mess AI finds itself today. The series of decisions like merger of AI and IA, closing profitable routes for benefit of private airlines, placing order for 110 planes which cast a huge debt burden, were responsible for the losses suffered by AI. Whether this was done with the purpose of shutting down the national carrier and "encouraging" private airlines is anybody's guess.

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sanjay joshi

May 17, 2016

A apt commentary on the PSEs. we need to send this article directly to PM. PSEs have become private empires of politicians, various associations, trade-unions and off course babus.

Like (1)

Avinash B. Bhusnar

May 12, 2016

Very informative article.
Thanks to Vivek for that.
But who will compel government to take fruitful action
in this regard?
Suggest that too to save our hard earned money.

Like (1)

Manoj R Golikeri

May 11, 2016

A real eye opener, Vivek.

Your articles are very well written with a great deal of analysis coupled with facts and figures.

I never miss a single article of yours. Please continue the good job.

Like (1)

RAVINDRA DUVVURI

May 11, 2016

Since the objective is only to keep these 2.5 lakh unproductive employees to remain unemployed, it may make more sense to close down these loss making PSU's, but continue paying the salaries of these employees till they retire. If we assume the average salary even at Rs.1 lakh per person, the total salary bill for 2.5 lakh employees would come to Rs.2,500 crores, which would still be a big saving in comparison to the current losses.

I assume that the wise men of North and South Blocks know it. Unfortunately, in India, politics is the only consideration, while basic economics is thrown to the winds.

Like (1)

Abhilash Kulkarni

May 11, 2016

Hi Vivek, I love your columns...You bring to our notice some of the important macro economic figures & how a common man is bearing the brunt! In the above case, the losses of the CPSE's is very well compared with agriculture budget.
Do you believe Sri Narendra Modi, who is considered as the less corrupt & hard working Prime Minister, would bring about any changes that can bring down losses in CPSE's and thus reducing reliance on taxpayer's money?

Like (1)

Sethu

May 11, 2016

I think more than fall in oil prices I feel strongly it is pure accounting jugglery; should be at the instance of Minister and IAS secretary under him.But you are obviously silent because you will not have any thing to prove that at this juncture.having worked in PSUs and also as Consultant I can confidently say this.But one will come to know this only after 3 or 4 years;at that point no one would be interested anyway.
You analysis is excellent based on whatever available data.

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