Daybreak - Privatisation didn't fail Air India. Airline economics did. The fix is the government, again

Episode Date: September 9, 2026

In 1967, Air India paid Salvador Dalí for a custom ashtray with a live baby elephant, flown all the way to Spain. (Yes, really! Here's the proof.) That was the airline. Flush with money, just about 14 years  into nationalisation. Today, it's asking its owners for $1.5 billion after its biggest loss ever, at more than 2 billion dollars.Privatisation was supposed to fix Air India. Three years on, it still hasn't. But the real story isn't a failed sale. It's a fatal crash, a closed airspace, and an industry that runs on razor-thin margins everywhere. But the actual fix might be closer than you think. And already sitting on Air India's own cap table.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

It 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 famous surrealist artist Salvador Dali. By the end of their encounter, the artist had agreed to design an exclusive astray for the airline's first-class international flyers. His 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 Dali 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. Only 500 of these ashtrays were ever made.

And I'm attached a link to an article with pictures of the ashtray and Big Baby if you'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 ash trees. And today, the airline is, well, going through some turbulent times, if you'll forgive the pun. early last month, one of Air India's flights experienced a 300 feet drop mid-flight. The Hindu reports that the incident caused injuries to 17 people on board. Later, an examination showed that there had been about nine technical snags 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 it 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 Amdabad 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 deprioritized timelines altogether and focused on a real structural overhaul no matter what time it takes. Others 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 figure, for the line 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 wealth fund. The other half is publicly listed. And still, the airline is known for its efficiency and discipline. Privatization 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, Trey Teworkies, and every day of the week, my co-host Nikashram and I will bring you one news story that is worth understanding and worth 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 decades 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 the year 2000. When that didn't work in 2017, the PJP government ramped up its efforts to sell. But the initial deals didn't get any bids until 2020, when the government decided to exit the airline entirely and even allowed the bidders to decide how much debt 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 2020,

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 Winodry, 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. After the aircraft purchase in 2006, in 2007, Air India merged with Indian Airlines. And after that, came 2008, the year of the infamous financial crisis.

and the expensive decisions of 2006 and 7 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 betterment, 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 few 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. In 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 U.S.-Iran conflict pushed up oil prices, and the International Air Transport Association or IATA 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-off 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 a problem. It's a problem. It's a exactly what happened under state ownership as well. The 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 duopoly. In fact, another report from IATA said that globally in 2025, airlines made less than $8 dollars of profit per passenger. In the Asia Pacific region, the profit was even less at around $3. And 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 airmail for decades before deregulating it in 1978. The Chinese government backs three airlines in the country and sustains a multi-billion dollar loss. Even India had to cap air prices last December when Indigo's cancellation of more than 4,000 flights caused a price surge. And for Singapore Airlines, which has been profitable for years, government backing is one of the reasons for its success. So what does it take for a state-backed airline to make airline economics work? Stay tuned. Airlines entered Air India's cap table in 2024, when Tata decided to merge Air India with

Vistara under the Air India banner. Vistara was a joint venture between Tata and Singapore Airlines or SIA, with SIA having a 49% stake. When it came on board 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 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 Demasek Holdings, which is Singapore's state-owned multinational investment 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 on occasion, though, warn 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 to 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. Reportedly,

the line retires aircrafts when they're around 15 years, old, and its average fleet age is very young at a little more than eight 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 are obviously important for airlines. The other thing SIA does is fuel hedging. To 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's specific. 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 foolproof 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 the pandemic. But it did give the lines 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, is 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% $2.8 billion. You see, it's paid by states and power companies that use its lines at rates that the regulator 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 areas,

airlines are running at huge losses. But the government just sees it as a cost to keep the country connected and even gave airline direct subsidies during COVID. Even local governments pay airlines directly to fly new routes to their city even when they're not profitable. Air India, on the other hand, does not enjoy that kind of unconditional government support anymore. And even though Tata has been quite patient, having absorbed almost 60,000 crore rupees in loss, over the last four years. As recently as yesterday, Tata's chairman and Chandrashikaran 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 customers. 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. And it isn't the kind of support China is showing either, because those kinds of losses are just unsustainable.

Maybe what Air India needs is the government's support again, but this time more hands-off. It could be in the form of occasional subsidies or urging states to cut aviation fuel taxes, which is actually something that Trump Mohan Nidu, the civil aviation minister, himself suggested last December during the Indigo debacle. And since most of India's fuel suppliers are government-owned, part ownership could help the line negotiate long-term fixed prices with the 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. Because otherwise, any sort of monetary involvement would just be another bailout. And if that's the case, then Air India will be back to having the same problems the sale was supposed to fix. Daybreak 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 Vargis and edited by Rajiv Sien.