In one of its boldest reform moves, the Modi government approved the privatisation of debt-ridden Air India and its five subsidiaries. After a Cabinet meeting, finance minister Arun Jaitley said “in-principle approval“ for AI's divestment had been secured and now a panel headed by him will decide on the modalities of the sale.
Jaitley told the media that Cabinet nod was given on the basis of a proposal presented by the civil aviation ministry. The decision comes after the Centre came around to the view that the financially bleeding airline could serve connectivity goals in private hands.
The airline has a debt of more than Rs.52,000 crore and is surviving on a Rs.30,000 crore bailout package extended by the UPA government in 2012.
A panel will decide whether to go for 100% stake sale in one go, or to remain present in the airline for some time and gradually divest ownership. The department of investment and public asset management has given options of 100%, 74% and 51% stake sale in AI.
The FM-headed “ AI-specific alternative mechanism“ will decide who can bid for the airline -whether foreign airlines in JV with Indian or foreign partners should be allowed to buy the Maharaja.
Current Indian rules allow Indian airlines to be owned fully by foreign entities but puts a cap of 49% on ownership by foreign carriers.
The Tata Group -founder of AI -is seen as a potential bidder for AI but it had, during the Vajpayee government, unsuccessfully bid along with Singapore Airlines. The current BJP administration will now examine if such a model can be allowed for AI.
The panel will also decide on the treatment of AI's unsustainable debt, hiving off certain assets to another company, demerger and strategic disinvestment of three profit-making subsidiaries.
The subsidiaries whose stake sale will be considered include four wholly-owned ones -AI Engineering Services, ground handling arm AI Transport Services, Alliance Air and the low-cost AI Express. The fifth subsidiary, Hotel Corporation of India, runs Centaur Hotels and is AI's 50:50 JV with SATS of Singapore.
The panel will also decide how to make AI -with its debt of Rs.52,000 crore -attractive enough for bidders. The airline has a working capital loan of Rs.30,000 crore and Rs.22,000 crore of aircraft purchase loan on its books. The process of evaluating AI's assets will start simultaneously .
AI has over 110 planes in its fleet, including 43 wide-body aircraft, and flies to 41 international and 72 domestic destinations. Its share in domestic and international air travel is 14% and 17%, respectively. The airline owns real estate across the world, including almost 32 acres in central Mumbai, apart from the iconic Nariman Point headquarters which is worth over Rs.1,600 crore.
While Niti Aayog has recommended complete privatisation, the aviation ministry favours selling AI's assets and subsidiaries to reduce its debt burden before privatising the airline. The ministry estimates about Rs.30,000 crore can be raised this way, which will take care of the working capital loan. The remaining amount of debt will then be aircraft-related. This way, the aviation ministry feels, may help get a better price for AI instead of an outright sale that may get the price of a distress sale.
The Congress-led UPA II had approved a Rs.30,231-crore equity infusion in the airline in 2012 over a decade and it has so far got Rs.23,993 crore of that. The Modi government feels that instead of pumping in thousands of crores into the airline, AI should be sold to professionals and the money saved thus be used in the social sector.
AI has about 12,000 employees and the subsidiaries have over 19,000 employees.While the only recognised pilots' union in AI (that of the erstwhile Indian Airlines) says it is not opposed to privatisation, other employee unions are opposing the divestment. The government says the future of the employees will be protected in the divestment process.