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

0:00It 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 same surrealist artist, Sarvath O'Rali. By the end of the encounter, the artist had agreed to design an exclusive ashtray for the airline's first-class international flyers. This fee, a baby elephant, and Air India obliged. They actually flew a big baby as the elephant was named all the way to Spain, where the Ali 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. The 500 of these ashtrays were ever made. And I'm attached to a link to an article with pictures of the ashtray and big baby if

1:02you'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. Only last month one of Air India's flights experienced a 300 feet drop mid-flight. The Hindu reports that the incident cost injuries to 17 people on board. Later an examination showed that there had been about 9 technical snacks 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, following the line's biggest ever loss. The thing is, the government had been trying to sell Air India for nearly 20 years before

2:04it 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 dollars, a combined loss from Air India and its budget arm Air India Express. Part of the reason is the 2025 Amdabat 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.

3:06Others 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's 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 Welch Fund. The other half is publicly listed. And still, the airline is known for its efficiency and discipline. The globalization 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'm your host, Jh. R. R. Gheeze, and every day of the week, my co-host, Nikita Shaman

4:08will bring you one new story that is worth understanding and will be 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 the Tata Group as Tata Airlines. It was renamed Air India in 1946 and nationalized in 1953. For Daykheeze, 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 a year 2000. In that tent work, in 2017, the BJP government trammed up its efforts to sell.

5:11But the initial deals didn't get any bits until 2020, when the government decided to exit the airline entirely and even allowed the bidders to decide how much depth they wanted to take on. That's the bit 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 Vinodurai flagged this purchase as a recipe for disaster later and named it as a predominant reason behind the company's nearly 40,000 crore rupees debt as of March 2020.

6:16After the aircrafts purchased in 2006, in 2007, Air India merged with Indian Airlines. And after that, came 2008, the year of the infamous financial crisis. With the expensive decisions of 2006 and 2007, left Air India with no cushion to absorb its hit. But when the sale happened though, the government took on the majority of all that debt. Tata inherited less than 25% of it. Analysts at the time even believed that because of the debt reduction, it would be easier for the airline to see a financial turnaround under Tata. So why hasn't that happened yet? The thing is, it almost did. I think all of us remember how famous Air India was for its poor service, its unclean flights and for the fact that it was never on time. So Tata had to go about fixing all of that. For the first six months of its ownership, it invested in employee welfare, IT infrastructure

7:17betterment and refurbishing aircrafts. And according to Bloomberg, the company had made real progress, even narrowing losses by more than 60%. According to some sources, it was even on track to break even by 2026. But then tragedy struck. On June 12, 2025, an Air India flight bound for London crashed seconds after its takeoff in Ahmedabad. There was only one survivor from the 242 passengers and 19 people on the ground lost their lives as well. A preliminary report last year suggested that the reason was a fuel cut off. But the final report isn't out yet and is actually expected sometime next month. The reputation hit to the airline was immediate. Tribune India reported that bookings fell by 20% right after the crash. Business standard reported that passenger traffic for Air India's India-UK route had actually increased by almost 15% year on year in June that year.

8:20In July though, after the crash, that same number increased only by a little more than 2%. After that, geopolitical upsets only added to this trouble. In May, India and Pakistan's brief military clash caused Pakistan to close its airspace off to Indian carriers, forcing them to take on longer routes to North America, Europe, Middle East and Central Asia. Soon after this, the US-Iran conflict pushed up oil prices and the international air transport association or IADA estimated that this has caused the share of jet fuel in total operating expenses for airlines to go up by more than 5%. So at the same time as airlines are being forced to fly longer routes, the fuel price has also increased. Of course, both of these are one of issues, not exactly in the airline's control. But the problem is the fact that it didn't have enough of a cushion to soften the blow of either instance. It's exactly what happened under state ownership as well.

9:24The thing is, airlines have been historically expensive to run. Their biggest operational costs are entirely outside their control. One reason is fuel like we discussed earlier and the other is the cost of the carriers themselves, which are controlled largely by the Boeing Airbus duo-poly. In fact, another report from IADA said that globally in 2025, airlines made less than $8 per passenger. In the Asia Pacific region, the profit was even less at around $3. The complication of the business is also exactly why governments everywhere have stepped in to regulate the sector from time to time. The US, for example, used to subsidize air mail for decades before deregulating it in 1978. The Chinese government packs three airlines in the country and sustains a multi-billion-dollar loss. In India, had to cap air prices last December when Indigo's cancellation of more than 4,000 flights cost a price surge.

10:26And for Singapore Airlines, which has been profitable for years, government backing is one of the reasons for success. So what does it take for a state-backed airline to make airline economics work? Stay tuned. Singapore Airlines entered Air India's cap table in 2024, when Tata decided to merge Air India with Vistata under the Air India banner. Vistata was a joint venture between Tata and Singapore Airlines or SIA with SIA having a 49% stake. When it came onboard the merger, it maintained a 25.1% stake in Air India. Now SIA has been profitable for a streak of nearly 50 years, except for a two-year-long loss period because of the pandemic. In fact, it posted a profit for last year as well of more than a billion dollars. Now SIA is majority owned by domestic holdings, which is Singapore's state-owned multinational

11:27investment fund. It holds about 55% of the company's stock, and the other 45% is listed publicly and is available for institutional and retail investors. Despite its majority stake, though, the government has publicly stressed that it does not interfere in the way the airline works. It has a location though, warned the airline to cut costs, and also to disinvest from certain subsidiary companies. So, it's not like the government doesn't hold the line accountable. That said, SIA also needs a report to investors every year, which is why it's quite famous for being incredibly efficient and disciplined in the way it runs its fleet. But, in a short time, the line retires aircrafts when they're around 15 years old, and its avid fleet age is very young at a little more than 8 years. The global average by the way is more than 15 years old. Having newer planes helps with both fuel efficiency and time-based performance, both of which

12:29are obviously important for airlines. The other thing SIA does is fuel hedging. The put it simply, this is when an airline locks in a certain price with sellers to insulate itself from price hikes in the future. SIA specifically hedges about 50% of its expected fuel consumption, which means that only half of its bill is affected when price changes happen. That being said, hedging is not a fool proof fix, because it means that an airline can also lock itself into a more expensive deal if fuel prices end up falling. For the hike that happened this year, the hedging didn't exactly save SIA fully either. The airline actually posted a small quarterly loss, its first since a pandemic. But it did give the line some breathing room, and it offers a sense of predictability that air-India could frankly use. Also, India has a non- airline example with a similar ownership structure. The Power Grid Corporation, which is India's national electricity transmission company,

13:32is 51% government owned and listed publicly for the rest. It's been profitable for years now, with its profit even tripling between 2016 to 2024 to $1.8 billion. You see, it's paid by states and power companies that use its lines at rates at the regulator's sets and ties to performance. If its lines aren't working reliably enough, its payments can be cut. On the other hand, if it performs better than required, it can actually receive a bonus. Meanwhile, China does things very differently from both Singapore and India. Like I mentioned earlier, three of its state-supported airlines are running at huge losses. But the government just sees it as a cause to keep the country connected, and even gave airline direct subsidies during COVID. And local governments pay airlines directly to fly new rules to their city, even when they are not profitable. Air-India, on the other hand, does not enjoy that kind of unconditional government support

14:36anymore. And even though Tata has been quite patient, having absorbed almost 60,000 crore rupees in losses over the last four years, as recently as yesterday, Tata's chairman, Enchandra Shakerin, said in reports that the airline now has to prioritize customer trust, operational execution and cost discipline. Which means, the patience from private ownership is also starting to reach its limit. This is by the way, after the company already discussed cutting flight capacity by 20% paying out less bonuses for employees and even pay cuts for people above the level of BP back in May. You see, more than a third of Air India's fleet is more than 10 years old. And every fuel price spike landed on its already long detours without any help from fuel hedging. So maybe the fix is not privatization, because that doesn't seem to be working right now.

15:37And it isn't the kind of support China is showing either, because those kinds of losses are just unsustainable. Only what Air India needs is the government's support again. But this time, more hands off. It could be in the form of vocational subsidies or urging states to cut aviation fuel taxes, which is actually something that Ram Mohan Naidu, the civil aviation minister, himself suggested last December during the Indico debacle. And since most of India's fuel suppliers are government-owned, part ownership could help the line negotiate long-term fixed prices without having to go through banks, the way private airlines do. And most importantly, the state could enforce stricter performance standards and actually hold the line accountable to it through some sort of penalty. In fact, I believe the only way for the government to return to the table is if it holds the airline accountable while maintaining a light touch approach. This otherwise, any sort of monetary involvement would just be another bailout.

16:42And if that's the case, then Air India will be back to having the same problems the sale was supposed to fix. Debrick is produced from the newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription offers daily long-form feature stories, newsletters and a whole bunch of premium podcasts. To subscribe, head to the Ken.com and click on the red subscribe button on the top of the Ken website. Today's episode was hosted and produced by my colleague Rachel Varghese and edited by Rajiv Sien.