In one of its boldest reform moves, the government on Wednesday approved the privatization of debt-ridden Air India and its five subsidiaries.
The debt-laden airline has been struggling to become profitable amid growing competition from low-cost rivals. Finance Minister Arun Jaitley said the government had given an “in-principle” approval for the stake sale. India will form a committee to decide on the details, including the size of the government’s stake to be sold, he said.
Jaitley told the media that Cabinet approval for disinvestment was accorded on the basis of a proposal presented by the civil aviation ministry. The decision comes after the government 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 by the UPA government in 2012. “How much will be disinvested, by which process, its assets and debt, as also its hotel companies, will be deliberated,” said Jaitley. A panel will decide whether to go for 100% stake sale in one go or divest gradually.
The Department of investment and public asset management has given options of 100%, 74% and 51% stake sale in Air India.
An employees’ union of Air India met NITI Aayog chairman Arvind Panagriya on Wednesday and demanded that the government waive the airline’s debt, instead of selling it to a private player.
‘NITI Aayog’, or the National Institution for Transforming India is a Government of India policy think-tank established by the BJP government to replace the Planning Commission which followed the top down model. The stated aim for NITI Aayog’s creation is to foster involvement and participation in the economic policy making process by the State Governments of India.
However, the move may have come a little too late as hours later the Union cabinet gave its in-principle approval for the disinvestment of Air India. NITI Aayog, the government think tank, had earlier proposed privatization of Air India because of its debt of Rs 52,000 crore.
“We request you to waive Rs 30,000 crore and give an opportunity to Air India management to keep flying the flag of the national carrier,” according to a letter submitted by the Air India Employees’ Union to Panagriya.
Expressing concerns about the uncertain fate of 25,000 employees of the airline, the union representatives have also demanded that if Air India is privatized, their salary dues should be cleared.
The union members also highlighted that the airline had incurred huge losses because of “hasty decisions and wrong civil aviation policy of the government of India” such as the purchase of 111 aircraft and surrendering of profitable routes to private carriers.
They also add that appointing retired employees on last- drawn salary has affected the airline adversely as well as recruiting sports personalities such as Suresh Raina, Yuvraj Singh, and Harbhajan Singh cost the airline several crore rupees.
Another employees union, Air Corporation Employees Union, is planning to seek an appointment with the Prime Minister’s Office.
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 Air India is seen as a potential bidder for Air India 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 Air India. The panel will also decide on the treatment of Air India’s unsustainable debt, giving off certain assets to another company, demerger and strategic disinvestment of three profit-making subsidiaries, said sources.
The subsidiaries whose stake sale will be considered include four wholly owned ones Air India Engineering Services Ltd, ground handling arm Air Transport Services Ltd, Alliance Air and the low-cost Air India Express. The fifth subsidiary, Hotel Corporation of India, runs Centaur Hotels and is Air India’s 50:50 JV with SATS Ltd of Singapore.
The panel will also decide how to make Air India 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 Air India’s assets will start simultaneously. Air India 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 privatization, the aviation ministry favors selling Air India’s assets and subsidiaries to reduce its debt burden before privatizing 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 Air India instead of an outright sale that may get the price of a distress sale.