A flag-carrier is generally taken as a means of transport that is an iconic representation of a country. The term is perhaps more applicable in shipping, whereby ships actually fly the flag, even though most merchant ships get registered in Panama as a matter of convenience. The hassle-free registration there helps them avoid strict regulations as well as income tax and to hire cheap foreign labor. In airlines, the rules are more stringent. But just being registered does not guarantee an airline the coveted status. Himalaya Airlines is not Nepal’s flag-carrier even if it is registered here. But flag-carriers are generally treated like pampered child, with the state forced to meet their just and unjust demands alike.
Need for constant backup financing, at the expense of taxpayers, is the usual mode by which they survive even when in red. But even then many countries continue to protect and support failing flag-carriers. Our flag carrier, known in short as the RA, is no different. It carries an additional uncertainty tag with its tiny fleet that, at times, fails to keep the date.
There was recently an immense interest in the Indian government’s efforts (GoI) to privatize Air India (AI), a behemoth public sector undertaking. It would not be a complete disinvestment as the GoI would still hold 24 percent shares and also seats on its board. But the disinvestment could not happen and many saw it as an aborted take-off. In reality, the situation was more akin to an aircraft left stranded on a parking bay.
Neither domestic nor foreign carriers showed any interest in taking the “debt laden” undertaking (in spite of some debt reduction). Indigo and Jet Airways had shown some interest initially but they were not comfortable with various conditions that were attached.
The submission deadline for potential buyers came and went and with the general election next year the BJP government thought it unwise to push it any further. The disinvestment would have been impossible, as it is, given the short timeframe.
AI has a total of InRs 44.19 thousand-crore of loan, of which Rs 25.8 thousand-crore is for existing and future fleet, while 13.6 thousand-crore is non-convertible debentures (NCDs). It is believed that the inability to make profit had hindered collection of debenture redemption at IA, while serious cash flow situation delayed even salaries.
As for RA’s financial health, its cumulative loss stands at Rs 0.100865 thousand-crore. The government has invested 0.294 thousand-crore in it while its mid/short term loan stands at 1.096 thousand-crore (as per the 2017 Auditor General’s report). As we see, beyond their common flag-carrier status, AI and RA are not comparable. The above data clearly shows the contrast in the sheer scale of AI and RA, even though the two suffer from basically the same kind of malaise.
RA is reported to have made a profit of Rs 16.1m. (It is deliberately not expressed in thousand crore, to make it look less dismal.) RA has been unable to optimize the use of its Airbus A320s. The new A330s it is acquiring will also face similar problems, with the European skies still forbidden for Nepali carriers. The prospects of A330s flying to destinations outside Europe are also rumored to be dim.
In general, airlines do not make money as a major portion of their earnings is spent on fuel, staff and essential hardware. The debt arises due to the exorbitant cost of aircraft and years of unprofitable service. Low cost and private carriers have been encroaching on flag-carrier’s traditional domain. If a route is good, someone will fill the gap with cheaper offerings and most travelers end up better off as a result.
It was necessary to prop up flag-carriers when the airline industry was just in its infancy. But why should they continue to operate in places where non-flag carriers are now willing to fly cheaply? Flag-carriers are also useful in serving remote regions of a country like ours, but there is no point in maintaining it beyond that. As we all know, there are other murky reasons behind RA’s link to national pride. Call it anything you like, we just want an airline that can fly on its own wings.
The author writes on aviation
