Will the ‘Maharaja’ Ever Descend from his (white) Elephant?

By Sambit Dash

The Indian state carrier Air India has accumulated losses of Rs 36,000 crores. To put things in perspective, the amount is about 10,000 crore higher than the allocation for higher education in India in the 2015-16 annual budget! Recently, the civil aviation ministry has initiated the process to sell land and houses it owns as part of an asset monetization plan which it thinks will raise Rs 5000 crore by March 2016. But the rot runs deeper and can hardly be addressed with such piecemeal effort.

While wresting control of the management and ownership, public enterprises, in order to improve performance, need to a) undertake comprehensive reforms to imbibe corporate governance; b) have greater autonomy; c) inculcate a merit-based culture; d) use desired and latest technology and e) demand insulation from bureaucracy and politics. While these theories are well established, absence of political and bureaucratic prudence has made Air India a bottomless pit that never gets filled no matter how much money is pumped into it.

Treating big and small shareholders alike, maintaining high standards of transparency and disclosure, working in an ethical manner and having absolute accountability are essential components of corporate governance and should be followed by the board of governors, which should have adequate representation of small shareholders and employees. The ability of the leader, seen in the example of erstwhile DMRC chief Er E Sreedharan, to steer an enterprise is of enormous importance and thus it is imperative to select a befitting one. While Air India CMD Rohit Nandan has shown promise, with 50% increase in EBITDA (earnings before income, taxes, depreciation, and amortization) in 2014-15, the road ahead is arduous.

Operational autonomy needs to be provided to the public enterprise. The government should establish the board with members having domain knowledge of the enterprise, clearly delineate the mandate of the enterprise and stop interfering in day-to-day management.

It would also be prudent for the government to set up a regulatory body for the state owned enterprises which could draft laws, manage assets and hire executives. Reforms in terms of promoting corporatization of these enterprises must be undertaken. Chinese state-owned corporations provide the right model for such an initiative.

Better branding can help enhance perception of the value of product/service leading to better pricing and hence performance. The new jeans and sneakers wearing Maharaja that replace the old regal one cannot be counted on to change fortunes for the national carrier unless professionalism, among other things, is brought into the huge number of existing staff at Air India.

Quality human resource is essential for improvement and thus pay packages need to be on par with what is on offer in the private sector. Performance linked pay must be implemented along with capacity building and a clear succession plan must be in place. Public enterprise should use technology which can lead to higher performance by enhanced efficiency, transparency, reducing operational costs, better communication with investors, shareholders and public. This is particularly pertinent in case of Air India whose losses are attributed largely to operational costs.

Of late, fleet renewal program, new terminals, offers for travelers, management board reshuffling as per the Air India Turnaround Plan (AITP) riding on the back of a Rs 30,000 crore stimulus given three years back have created a buzz of hope for the ailing national carrier. If the government must have a carrier (though there is no good reason why it should), it has to ensure that a public enterprise should run by imbibing best practices and in the process winning the confidence of the public at large.

(Photo Courtesy: worldlypost.in)

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*Sambit Dash is a senior grade lecturer in the Department of Biochemistry at Melaka Manipal Medical College, Manipal University by profession and a blogger by inclination.