Air India urgently needs new wings

Air India urgently needs new wings

The long-contemplated process of privatisation of Air India has started with the government inviting Expression of Interest (EoI) from prospective buyers and giving a preliminary outline of its sale plan. The government wants to divest 76% of its stake to a strategic investor so that the buyer will have management control over the airline. Air India's subsidiary Air India Express and a partial stake in a ground services arm are also being sold. But the government wants to retain some other subsidiaries for the time being. Air India has a debt burden of Rs 48,781 crore, and the buyer will have to take Rs 33,392 crore of the debt along with the stake. The crux of the deal will be this, and the price to be offered by the buyer will be decided by that entity's plan to address the debt issue. The condition that the buyer should have a net worth of at least Rs 5,000 crore is important in this respect.

Air India has strengths and assets that make it attractive for a buyer. It has a large fleet of 138 aircraft, operations serving 54 domestic and 94 international airports, flying rights with many foreign governments, parking slots, real estate and infrastructure and trained staff and crew. These are positives, though the buyer may have a different view of the staff strength. The government has stipulated that all the staff should be retained for one year after the management transfer. It has also promised not to stop the benefits it has been giving to retired employees. The government wants to finalise the deal as early as possible, perhaps by 2019. But the present broad outline of the disinvestment plan may change in the coming months, depending on the issues that may come up during the process.

A successful completion of the process is important in many ways. The government has no reason to be in the aviation business when private players are very efficiently and profitably operating in the field. Air India's market share is now a poor 13%. It is a drain on the exchequer and the bleeding has to be stopped. The proceeds of the disinvestment would help to improve the fiscal situation. The government may be able to sell its residual 24% stake at a later date at a much higher price when the airline's functioning improves under the new management. There is a view that the government may completely exit Air India by selling its stake to institutions like the LIC. The air traveller will also gain because there is likely to be better competition in the sector if Air India becomes healthier and more dynamic.

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