The Air Mauritius Gamble

Opinion

By choosing more rather than less political and administrative control over the fate of both AHL and MK in these difficult times for the whole aviation industry, the government is undoubtedly taking a major gamble, one whose outcome is as unpredictable as the pandemic

By Jan Arden

Several separate events surrounding the Air Mauritius (MK) saga have unfolded bringing us back to the topic for additional comment to what has been amply treated here as elsewhere. We have had the signature of the Deed of Company Arrangement (DOCA) by the Voluntary Administrators with creditors, the creation of a public structure regrouping MK and several subsidiaries and sister companies into the mega Airport Holdings Ltd (AHL) and the appointment of some key people to head the MK and AHL entities.

In the midst of this crucial attempt at re-engineering our national flag carrier, which has suffered from a checkered history of political interference and meddling in what should have been professional aviation decisions, news hit the stands from all Indian and aviation media concerning the successful privatization of the massively indebted Air India to Tata Sons in a sort of poetic justice. But more importantly perhaps it signals a major Indian policy inflection point, ending the era when after nationalisation in 1953, bungling, incompetent or corrupt administrators and politicians, with little knowledge of management principles, still less of aviation industry matters, tried to play business tycoons while helping themselves to generous servings from the company’s operations.

Previous attempts to divest from Air India date back to the Atal Bihari Vajpayee government in 2003 which was in favour of privatisation of both Air India and Indian Airlines and simultaneously, set up a respected autonomous civil aviation regulator. Curiously, it was the Congress-led UPA government which came to power with PM Manmohan Singh at the helm, that shelved the 2003 privatisation blueprint and has been associated with the worst episodes of bungling management that saw the profitable airline nosedive from 2007 onwards into mammoth debts and chronic annual losses which were regularly passed on to the Indian taxpayer. At heart of what can only be termed as scandalous ripoffs by inept public sector babus (bureaucrats of Indian Administrative Service – IAS – and other government officials) and a culture of graft by their political masters, were the forced expansion in 2004 of Air India’s fleet by a whopping 111 airplanes without route or upgrade plans and, secondly, the colossal losses incurred that made matters worse with the merger of Air India with the domestic carrier Indian Airlines. Investigations of the responsibilities of past UPA Civil Aviation Ministers and any supple-spined high officials in the mammoth purchase spree and the inept merger are under way by the Central Bureau of Investigation, India’s premier investigating agency.

That such a situation was intolerable, PM Modi was well aware but his attempt in 2017 to flog off 75% of the airline to private sector did not elicit even a single bidder. Obviously, no serious private sector industry giant wanted anything to do with a loss-making, debt-ridden company where administrative babus and their political masters might continue to have even a minimal say or influence on sound and tough management decision-making required to redress a damaged corporate image and Air India’s dire financials in a highly competitive sky-flying environment.

The only options for PM Modi’s government was either to continue raking up massive debts, huge annual operating losses and costly bailouts or, despite the pandemic, tender out for a 100% lock, stock and barrel sale to a putative bidder with savvy aviation experience. The latter option, with the Indian government taking 75% of the colossal debt off Air India books, has finally borne fruit and Rattan Tata has emotionally won back JRD Tata’s visionary creation and once the pride of the Indian nation.

India’s context, as can be surmised from above and the scale of operations or financials involved, is different from ours and to suggest that privatisation is the applicable mantra to obviate the hefty price for administrative and political masters meddling in MK’s history would be simplistic and probably unpalatable for us on most fronts. Besides, there is no one-size-fits-all solution for national carriers before and during the pandemic: while Air India and MK are illustrative of an entrenched culture of politico-administrative meddling, save for unfortunately too brief tenures of relative autonomy, the highly successful national flag carriers like Ethiopian Airlines and Singapore Airlines show that wise statesmanship can accommodate a hands-off political interference policy and allow credible aviation management, the carrier company and national interests to thrive.

The gamble being taken by the government and the voluntary Administrators is exactly opposite to the BJP Air India inflection and far from the models afforded by Ethiopian or Singapore Airlines. With the top financial bureaucrat Dev Manraj as Chairman and two Permanent Secretaries from PMO on its Board and Special Advisor to the PM Ken Arian as CEO of the mega holding company AHL, the politico-administrative brass will undoubtedly set their stamp on MK future, its operations, fleet expansion or personnel matters. The latter, although a listed company becomes, by virtue of the DOCA, a subsidiary reporting to the parent holding politico-administrative behemoth, a situation that may have seen a first vote of confidence with the announcement that Air India will exit from its MK shareholding.

Many details are yet to be worked out regarding the regrouping of up to fourteen different entities under the wings of Air Mauritius Holdings and the complex share negotiations that may be required to that end. Neither is it known yet if, other than the listed company MK, all other costly Boards and Chairpersons will be regrouped into Divisional Units or scrapped and replaced by Officers-in-Charge (OICs), adding to possible operational savings. MK itself under this new stewardship can certainly be run by its current OIC, the experienced Raja Buton, without the need for an expensive CEO recruitment.

Since the Administrators, although handsomely paid by the virtually bankrupt MK, have not seen fit or found time to produce a strategic or business plan for MK or its Holding, that crucial job has been tasked out to Indian consultants CAPA, knowledgeable insiders who were already advising two years ago on MK restructuring and rightsizing.

By basking in a closeted ecosystem based largely on tourist arrivals/departures and a captive civil servant travel audience, buffeted by code-sharing agreements with any competing airline reducing the risk of price wars, protected by political brass, MK has for too long enjoyed the privileges of a rent-seeking culture, which in no way diminishes the efforts put in over the years by different categories of personnel, from ground staff to experienced pilots and flight commanders. With its reduced fleet of long-haul aircraft and short-range ATRs, MK would probably be advised to strictly strip down its routes to those ensuring its cargo and passenger traffic roles to the national economy. That suggests relying on a couple of long-distance hubs (Paris and Hong-Kong), a few selected medium-distance hubs (say Mumbai, Nairobi, Singapore and Jo’burg) with the ATRs providing for inter-island travel. With a savvy, credible and agile management that is unfettered by constant political meddling and occasional bungling.

By choosing more rather than less political and administrative control over the fate of both AHL and the national carrier in these difficult times for the whole aviation industry, the government is undoubtedly taking a major gamble, one whose outcome is as unpredictable as the pandemic.

* Published in print edition on 12 October 2021