The Government sold Air India to escape its problems. The fix is to buy back in

Rachel Varghese (0:00)

It was 1967, just 20 years post-independence. Air India, India's flagship carrier, had been nationalized just 14 years ago. And some important people from the airline were in New York, and happened to run into the famous surrealist artist, Salvador Dalí. By the end of their encounter, the artist had agreed to design an exclusive ashtray for the airline's first class international flyers. His fee? A baby elephant. And Air India obliged. They actually flew big baby, as the elephant was named, all the way to Spain, where Dalí was living at the time from Bangalore Zoo. The ashtray itself was made of white porcelain with a rim that looked like a blue snake. The supporting legs were designed as surreal style swans, which also looked like elephant heads if you looked at them upside down. Only 500 of these ashtrays were ever made. And I would ask to link to an article with pictures of the ashtray and big baby, if you'd like to check it out. So that's the kind of airline Air India used to be. Just 14 years into nationalization and enough cash to fly a whole elephant to another country for just 500 ashtrays. And today, the airline is, well, going through some turbulent times, if you'll forgive the pun.

Early last month, one of Air India's flights experienced a 300 feet drop mid-flight. The Hindu reports that the incident caused injuries to 17 people on board. Later, an examination showed that there had been about nine technical snags in a minute, and also that the pilot had been flying under the influence.

And then on August 25th, just about three weeks after this incident, Air India asked its owners Tata and Singapore Airlines for $1.5 billion dollars, following the line's biggest ever loss. The thing is, the government had been trying to sell Air India for nearly 20 years before it was finally acquired by Tata in 2022 The sale of the loss-making line was framed as a win, and an easing of the burden that it had been on taxpayer money for years. And Al Jazeera report estimates that keeping the airline flying was costing taxpayers about $3 million a day for the decade before the sale. Now, airlines have always had thin margins. But since the sale, Air India's losses are today more than they have ever been. At $2 billion plus, a combined loss from Air India and its budget arm, Air India Express. Part of the reason is the 2025 Ahmedabad crash and geopolitical tensions, which have both complicated the company's reputation and its operations. Now, Tata had initially promised a five-year turnaround timeline for Air India. Some people say that the company should have de-prioritized timelines altogether and focused on a real structural overhaul no matter what time it takes. Others have suggested an update to the way airlines themselves run, either as government utilities like trains or through aggressive preparation for fuel price hikes. But I think that the fix for the line struggles may actually be right on its cap table. You see, one of its owners, Singapore Airlines, is one of the most consistently profitable airlines in the world. And more than half of it is backed by Singapore's sovereign wealth fund. The other half is publicly listed. And still, the airline is known for its efficiency and discipline. Privatization was supposed to fix Air India. It has not yet. So, the problem wasn't ever about who owns the line, but about what kind of role the ownership was playing. And looking at Singapore Airlines as an example, the solution for Air India may actually be for the government to come back in. Just this time, very differently.

Welcome to Daybreak, a business podcast from The Ken. I am your host, Rachel Varghese, and every day of the week, my co-host Snigdha Sharma and I will bring you one new story that is worth understanding and worth your time. Today is Wednesday, the 9th of September.

To be fair, the privatization of Air India hasn't been a failure exactly. In fact, the airline was founded in 1932 by Tata Group as Tata Airlines. It was renamed Air India in 1946 and nationalized in 1953 For decades after, the Indian aviation sector remained close to private companies. Then in the 90s, when it opened up, private players offered cheaper options and Air India started to lose its market share. The government first tried to sell the line as early as the year 2000 When that didn't work, in 2017, the BJP government ramped up its efforts to sell. But the initial deals didn't get any bids until 2020, when the government decided to exit the airline entirely and even allowed the bidders to decide how much debt they wanted to take on. That's the bid that Tata won in 2022 The thing is, almost 98% of Air India's cumulative net loss in the decade before 2022 was because of the interest on its debt and the general depreciation of its fleet. Less than 2% of the losses were because of how the airline was operating on the day-to-day. So, where did all the debt come from? Well, in 2006, the company ordered more than 100 new aircrafts to replace a fleet that was nearly 20 years old. This purchase was almost entirely funded by debt. The Comptroller and Auditor General or CAG, led by Vinod Rai, flagged this purchase as a recipe for disaster later and named it as the predominant reason behind the company's nearly 40,000 crore rupees debt as of March, 2010