|»Vivek Kaul's Diary|
Air India Has Turned Profitable and That's Got Me Worried
11 MAY 2016
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
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.
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.