Why do Indian airlines fail again and again

The third worst airline in the world is privatized

Anyone who wants to make a name for themselves with India's growing middle class should go to an airport in the metropolises of New Delhi, Mumbai, Chennai or Bangalore. Business travelers, vacationers and many others who can afford to take off are crowded there.

Passenger numbers have been skyrocketing for years, by over 16 percent in November last year, according to the international air transport association IATA. With 130 flights a day, the Delhi-Mumbai route ranks third in the international list of the most frequently flown routes, reports IATA. The statistics show the boom in India's aviation industry.

The local low-cost providers are primarily responsible for the dynamism; With special offers, reliable service and new aircraft, they are attracting more and more customers to the planes. There is fierce competition between low-cost carriers such as Indigo, SpiceJet and Jet Air, which ultimately benefits the passengers in particular.

In the dynamic environment, the traditional national airline Air India has no chance in the long run. If it weren't for the protective hand of the government and the millions in subsidies from the state budget, Air India would have long since collapsed in business terms. The times in which the traditional society figured as a figurehead for the country and its people are long gone. "Inadequate service, inadequate technology, lousy food and hours of delays are the order of the day at Air India," says a report in a German daily newspaper under the unflattering title of "The third worst airline in the world". The sheet refers to a ranking by the aviation industry company FlightStats.

Air India's misery has long since become a political issue - the management cannot complain about a lack of publicity, but most of the remuneration is negative. The behavior of politicians who regard the aircraft almost as their private property triggers again and again. Time and again, in the course of politicians' trips, there are flight plan changes that are arranged at short notice "from above".

The state-tolerated mismanagement has a high economic price. The lavish subsidies should now come to an end. India's government has decided to privatize the loss-making company. According to the plan, Air India should have new owners by the end of the year.

The project is part of a government package that aims to improve conditions for foreign investors. The announced liberalization is a component of the “Make in India” campaign run by Prime Minister Narendra Modi. The aim of this is to attract jobs and prosperity to the emerging South Asian country. The resounding success of the campaign has not yet been achieved. Business circles say that Modis India is far from a paradise for foreign investors.

140 aircraft for sale

The announced privatization of the ailing state-owned company is also rather half-hearted. The share of foreign investors is limited to 49 percent from the outset. It is not the first time that Air India privatization has been on the agenda; The reform has so far failed time and again due to political resistance from various interest groups. Only recently, the relevant technical committee in the Indian parliament demanded that privatization be postponed for five years so that the company could be reorganized with public funds in the meantime.

In order to take the wind out of the sails of protectionists and opponents of privatization, the government has put all sorts of restrictions on the project. Not only is the 49 percent cap on foreign capital intended to prevent non-Indians from taking control. The business press extensively quotes an unspecified government representative as saying that New Delhi will insist that the management also remain in Indian hands.

In order to speed up the process, the government is planning to bring the company onto the market, as it were, slice by slice. The company is to be broken down into four parts - in addition to the sister airlines Air India and Air India Express, the government is looking for bidders for the technical operation and ground handling.

In the sales prospectus, which the government is working on in close collaboration with a renowned international consulting firm, the company's strengths will be mentioned above all. Air India owns 140 aircraft; the market share on the Indian market for international routes is 17 percent and domestically 14 percent. One pound that can be used to usury is membership in the Star Alliance. Many passengers ask how this could come about.

The list of flaws for potential investors is likely to be longer than the list of strengths. According to industry experts, the workforce at Air India with 20,000 employees is not atypical for a state-owned company. The fact that many of these people are unionized is not an incentive to buy in this context. India's Aviation Minister Jayant Sinha assures that the government expects "a bright future for its employees". But this statement hardly corresponds to experiences with other privatization measures.

Up to six offers expected

The biggest block on the leg is probably the mountain of debt that Air India has amassed over the years. The debts are said to amount to the equivalent of 8.5 billion US dollars. Experts agree that the company will only find a buyer free of debt. According to media reports, the government is planning to found a property company to take over the contaminated sites.

Under these conditions, the consulting firm CAPA (Center for Asia Pacific Aviation) expects four to six serious offers. So far, only the Indian low-cost airline Indigo has shown official interest. The interest of Singapore Airlines and Qatar Airways has not been confirmed. The Tata group is also mentioned in reports. The company had founded Air India in 1932, but lost control in the early 1950s as part of nationalization. Tata's connection to the commercial aviation industry is meanwhile the airline Vistara, which the Indian conglomerate operates together with Singapore Airlines.

“Participation in the bidding process is not an issue at all for the Lufthansa Group,” says Wolfgang Will, who represents the German airline in India, when asked. The focus is currently on consolidation in Europe, "there is still a lot to digest," says the manager. Like other international airlines, Lufthansa is also happy about good business on the geographically favorable subcontinent. "India is an attractive market, growth in international air traffic is between eight and ten percent," says Will. And further: "A newly established Air India can return to splendor and glory."

That is what the Indian head of government would like. Meanwhile, the leading daily newspaper "The Times of India" refers to the larger political context and calls the project in an editorial a "milestone in the reorientation of the role of the state in the economy". Narendra Modi - that much is clear - puts pressure on.

Having started as a reformer three years ago, his half-heartedness in terms of economic liberalization has cast doubts on many people about his intentions. At the end of the year we will know more - about the real intentions of the Prime Minister, but above all the future of the (still) state-owned Indian airline.

Dr. Ronald Meinardus is the head of the South Asia regional office of the Friedrich Naumann Foundation for Freedom (FNF) in New Delhi. Twitter: @Meinardus