Govt unlikely to demerge Air India
Segregating international operations may kill the company's business model and erode its value, says an aviation ministry official
The government is unlikely to demerge Air India as it fears such a move could erode the value of the national carrier.
InterGlobe Aviation, which runs India's leading airline IndiGo, has expressed interest in taking over the international business of Air India. But multiple sources in the civil aviation ministry and Air India involved in the divestment process said neither the finance ministry nor the civil aviation ministry favoured a demerger — primarily because allowing buyers to cherry-pick the company’s assets might hinder the sale process.
A senior Air India official said the airline had objected to the idea of demerger. “Air India follows a huband-spoke model…. the domestic (operations) feed the international routes, and demerging is akin to killing the model and rendering the domestic business to zero value,” he said.
Air India’s international business is a prized asset, comprising long-haul aircraft such as Boeing 777 and 787, prime slots at airports across the world, and bilateral. Almost 65 per cent of the company’s total revenue of ~22,146 crore in FY17 came from its international business.
“This option is not on the table. We will not go back to the days of Air India and Indian Airlines. Selling the lucrative part to one bidder makes it difficult to sell the loss-making portion," a senior aviation ministry official said, adding that the sale of a public enterprise never happened in such a manner.
After giving in-principle approval for strategic divestment in Air India, the group of ministers (GoM) held its first meeting last week. The GoM has been mandated to look at the ways of hiving off certain Air India assets, strategic disinvestment of three profitmaking subsidiaries and deciding the criteria for eligible bidders. The GoM had given a go-ahead to formally start the process of inducting a transaction advisor and legal advisor, the official said. The advisors would guide the government in understanding the interest of the market and frame the criteria for the sale. Another official told Business
Standard that the Department of Investment and Public Asset Management (DIPAM), which will carry out the divestment process, was not in favour of changing the criteria of sale based on the interest of a single bidder.
“What the government has got from IndiGo is just an expression of interest. The modalities of the sale process will not be dependent on an informal interest. We are confident that we will have bidders who are willing to take over both domestic and international business of Air India,” he said.
IndiGo promoters Rahul Bhatia and Rakesh Gangwal on July 6 said the company’s primary interest was to buy international business of Air India and its subsidiary Air India Express as part of its plan to become a low-cost long-haul carrier. To reiterate IndiGo’s position, Gangwal even cited the example of United Airlines buying PanAm's international operations to assert that specific carving out of airline assets had happened before. However, they did not rule out the possibility of buying the entire business in case a demerger was not possible.