Air India’s goal is net profit by FY19: aviation secretary

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There are no plans to sell off Air India at the moment, but the state-run carrier must be made profitable, aviation secretary Rajiv Nayan Choubey said in an interview on India’s aviation policy and Air India’s future. Edited excerpts:

Did you have the model of any country in mind which you wanted to replicate when framing the new aviation policy?

We do not have a specific country in mind which we treat as a kind of model, the reason being that India is very, very unique as far as the aviation sector is concerned. Therefore, we have thought of unique solutions to those unique issues which Indian aviation faces. And in my view, the largest single challenge of the civil aviation sector in India is its penetration—70% of domestic flying happens among just 15 cities of the country. This, I think, is not how it should be and that’s why the main thrust is how to take flying to the masses, how to improve the depth of penetration of the country.

What is the bird’s eye view for the aviation sector five years from now, after this policy?

The policy itself says by 2022, we actually distinctly see it (domestic passenger traffic) going up from 80 million to 300 million. There is just one single uncertainty—crude prices. If crude prices again become disruptive—let us say they go to $90—then I see difficulty. But if the crude prices remain soft—not exceeding $60 or $70—then I think this is doable.

What is the big plan for Air India given that you have pretty much opened up the entire sector. What will Air India’s role be?

Air India will remain a government airline. As of today, we have no proposal, no thinking to sort of go and see whether we can sell off Air India. Government has made a significant investment commitment of pumping Rs.30,000 crore spread over 10 years, of which Rs.22,000 crore has been invested already and another Rs.8,000 crore is to be invested.

So, the whole idea is that first of all, Air India must be made to turn around, AI must be made profitable. We have not yet thought of the future of Air India after it becomes profitable. We have also planned to induct 100 aircraft over the next four-and-a-half years, from 135 aircraft today to 235 aircraft.

Will Air India need more equity after that?

Possibly not. Once this Rs.30,000 crore is given, Air India should not need more equity.

What is the definition of Air India’s turnaround?

Net profit.

That is after paying the interest?

Yes, it is doable.

And you are pinning your hopes on fuel at what price when estimating this?

Fuel not exceeding $70.

If it’s at that, you think Air India can turn around?

It can turn around and it will. We are pretty confident of it.

And how do you take it to the next level?

100 aircraft.

But after that…

After that, we have not yet thought beyond that. As I mentioned, the goal that we have set for ourselves—and it’s not an easy goal to have—is Air India net profit by 2018-19.

And you don’t see any move to bring in private investment into the airline?

Not at the moment.

But do you think Air India can absorb the floodgate of opening up—100% FDI, airlines like Vistara being allowed to fly abroad early?

Yes, it will be (able to). Air India has a huge early-mover advantage; we are already there what others will be doing hereafter.

But, will you give it some sort of a cushion?

No. Normally, for example, when it comes to allotment of bilaterals, Air India will continue to get first priority in bilateral right allotment.

The comptroller and auditor general (CAG) had come down very hard on the aviation ministry and named some ministry officials during the past government for compromising Air India’s interests. How have you addressed that?

Our policy formulation is not meant for addressing specific CAG issues as such. That was not the main focus. It got addressed; it’s a different matter. For example, bilaterals. As we have already mentioned, that’s one issue that will be handled in a predictable manner and so on and so forth.

The CAG had also red-flagged public-private partnership (PPP) airports. There were also issues with subsidiaries of GMR-led Delhi International Airport Ltd, which were seen as a means of diverting government revenue?

For taking care of CAG’s concerns, we will have to ensure that when the concession agreement is being implemented, its implementation should be proper. I have not come across CAG saying that the PPP template is faulty. So, template itself is not faulty. It is the drafting of the template agreement, it is the monitoring and its follow-up which is required. The (airport) model (going forward) will be that of hybrid till, where the revenue share will be the biddable parameter.

Will you continue the policy of shutting down old airports—like in Bengaluru and Hyderabad—when new ones come?

They will continue; why should we shut it down? We did (close them in the past), but here, we have not proposed anything like that. The policy does not propose shutting down of existing airports. In Chennai, for example, if the state government wishes to either set up a new airport by itself or PPP, we will allow that to happen, if it is not coinciding with the saturation point of existing airports.

What is the feedback from investors?

I have only received congratulatory messages from everybody—both international organizations, international players, and maybe those who have had reservations have chosen to remain quiet, I don’t know. In fact, I was very happy when I found interest coming from small private entrepreneurs; similarly, a lot of interest coming from small aircraft manufacturers. I have met half-a-dozen entrepreneurs (who are keen to start airlines) and half-a-dozen small aircraft manufacturers in the last five months. Those manufacturing 19-seater, 30-seater, 42-seater, 80-seater, they are the smaller ones, who were keen and wanting to find out when will it happen.