How to disinvest in Air India: the British Airways, Japan Airlines & Austrian Airlines models

 

The Union cabinet is expected to take a decision on disinvesting in chronically sick state-carrier Air India this month and Niti Aayog Vice Chairman Arvind Panagariya is reported to have cited the privatisation experience of British Airways, Japan Airlines and Austrian Airlines as case studies. Here’s a look at what they went through and how they are faring today.

NIKHIL RAMPAL

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BRITISH AIRWAYS

The operating profit of BA had dropped and it faced an operating loss of £102 million in 1981-1982. Prime Minister Margaret Thatcher’s plan to privatise government-owned industries paved the way for privatisation of the airlines. The airline slashed 22,000 jobs and surplus aircraft and other assets were sold. In 1987, the company was listed on the stock market and it was oversubscribed. The privatisation also resulted in £900 million being injected into the airline.

After privatisation 

The privatisation of the airline was deemed successful. A paper by the Policy Research Centre, Hertfard College, Oxford concluded: “The performance record of BA during this period of deregulation/liberalization has been a good one. Prices have fallen, unit costs have fallen steadily, the airline has expanded considerably, investment has risen and profitability has been maintained in difficult market conditions.”

How it’s doing now

The operating profit of BA increased from £1,264 million to £1,473 million during the financial year ending 2016. The company was also able to reduce its expenditure on operations by 1 per cent during the same financial year.

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JAPAN AIRLINES

Japan Airlines was an independent airline when it was established in 1951. However, in 1953 it was the only airline given a licence to operate internationally and became a public enterprise. In 1987 the government decided to privatise Japan Airlines along with other public companies. The government sold its entire stake in the airline.

After Privatisation

In 1992 JAL suffered its first loss since 1985 of $100.2 million. The airline’s profitability was hit by the Gulf war and recession. It took steps to cut costs, one of which was laying off around 4,000 employees between 1993-1998. It received multiple bailouts from the government to keep it afloat in 2001, 2003 and 2009. However, it finally filed for bankruptcy in 2010. It received a 350 billion yen bailout from a government-backed corporate rehabilitation body and also got tax breaks. The company’s shares were later relisted on the Tokyo Stock Exchange.

How it’s doing now

The airline reported a profit of US $1.6 billion for 2015-2016 which was an increase from the $1.3 billion it made a year earlier. However, the revenue made per passenger fell 2.6 per cent compared to the earlier year.

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AUSTRIAN AIRLINES

The airline was listed on the Vienna stock exchange in 1988 and the government slowly reduced its stake until 1999 when it owned 39.7 per cent of the airline’s stock. In 2008, it was decided to privatise the airline completely after the airline reported a loss of around €429.5 million. In December 2008, Lufthansa said it would buy Austrian Airlines and by September 2009 it obtained 54.99 per cent of the entire share capital for €220 million.

Post Privatisation/ Take over

After the takeover, the airline’s restructuring programmes cut staff by 1,500 in order to decrease costs.

How it’s doing now

In its annual earnings for 2016, the airline said that earnings before interest and tax was up at 65 million from 54 million in the previous year.

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