AI SALE PROSPECTS TAKE A NOSEDIVE
After announcing on January 10 that national carrier Air India would be opened up to possible foreign direct investment (FDI), the government now says it will be sold as four different companies. While the core airline business, consisting of Air India and Air India Express, will be offered as one company, AI’s regional arm, ground handling, and engineering operations will be sold separately, Union minister of state for civil aviation Jayant Sinha has said. “Aviation is a very fast growing sector, with really exciting opportunities for all participants, so we felt all of this will unlock growth and the competitiveness of the Air India group,” Sinha said, adding that management control will be with local investors.
The sale process is expected to be completed by end2018. Although the sale of the airline—which has been losing Rs 5,000 crore a year on average—was announced early last year, the response from potential bidders has been rather tepid. There has been only one formal
expression of interest for Air India so far—from IndiGo. Although the Tata Group, which owns Vistara and has a stake in Air Asia, has said it was evaluating a deal, there has not been any formal letter to the government on this so far. All potential bidders will want clarity on who will bear the carrier’s huge debt, which stood at Rs 48,877 crore on March 2017. Of this, Rs 17,360 crore is loans taken to acquire aircraft while Rs 31,517 crore is working capital loans.
Reports say the government is planning to hive off Air India’s unsustainable debt to a special purpose vehicle to make the deal attractive. This would mean that only the aircraft loans would remain with the company. This, say experts, could be covered by future cash flows. But some experts say the government’s plan to retain 51 per cent stake in each of the four parts may be a dealbreaker for potential investors. It’s no secret that the airline’s woes owe mainly to mismanagement over the years by its political masters and the bureaucracy. Only by letting the private partner have a decisive say in the operations of the airline can it hope to be successful, as the MarutiSuzuki joint venture has demonstrated in the auto sector.