DEAL GROUNDED
India indicates that a sale of its ailing stateowned carrier has been shelved.
NEW DELHI: Air India needs to spruce up through a fresh cash injection, cost cuts and non-core asset sales, analysts say, after the government indicated a sale of the ailing state-owned carrier had likely been shelved.
Civil Aviation Minister Suresh Prabhu said on Tuesday that the government would review its plans to privatise Air India at a later date because now was not the right time to sell as oil prices were high, according to newspaper Mint.
India last month failed to attract buyers for the government’s 76% stake in the debtladen carrier, in a blow to Prime Minister Narendra Modi’s credentials as a reformer willing to step away from running moneylosing businesses.
Shelving the sale could exacerbate the carrier’s financial woes and hurt the government’s efforts to cut debt, analysts say, adding that then the focus, at the very least, should be on improving Air India’s operations to ensure it does not lose more money or market share.
“Government would probably wait for the right market conditions to proceed with the stake sale and probably in the meantime, they could look at offloading some of the non-core assets,” said Teresa John, economist at Nirmal Bang Institutional Equities.
She did not expect the sale to happen before India’s general elections next year.
The Indian government and Air India could not be reached for comment.
Air India has six subsidiaries — three of which are lossmaking — with assets worth about $4.6 billion. It has an estimated $1.24 billion worth of real estate, including t wo hotels, where ownership is split among various government entities.
“Air India is a classic case where the sum of parts is more valuable than the whole entity. Individual suitors are interested in different parts of Air India and they should go for a part sale,” an industry source said on condition of anonymity.
The national carrier operates domestic and international flights, runs a lowcost airline and also has a ground-handling business.
“The decision to call off the sale is a highly disappointing reversal of the government’s earlier commitment to privatising the national carrier,’’ consultancy CAPA India said in a note.
“Under continued government ownership, with no clear roadmap, Air India is likely to see its domestic and international market shares decline over time to a point where the carrier is no longer relevant,” it said.
Air India has been losing domestic market share to rapidly expanding lowercost operators like InterGlobe Aviation Ltd’s IndiGo and SpiceJet that are now looking to expand their international routes.
Air India, which employs some 27,000 staff, said this month it was seeking a shortterm loan of 10 billion rupees ($148 million) so it can continue day-to-day operations.
CAPA India estimated the carrier would make losses of $1.5 billion to $2 billion over the next two years alone, adding it represented an unnecessary drain on taxpayer funds in an industry that is well-served by private operators.
“There will be need for incremental funds but it is not clear if that will come from the government or external borrowing from banks,” said the industry source, adding that the airline would most likely have to take on more debt if it does not sell assets to raise money.