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Disinvestment Route: Govt May Exit Air India Altogether

Debt-saddled national carrier Air India is understood to be losing close to Rs 15 crore per day, persons familiar with the development said. Consequently, the government may consider exiting the airline altogether, instead of holding 24%, persons close to the transaction told FE on condition of anonymity. Such a strategy, they said, would ensure interest in the national carrier as also some clarifications on the airline’s finances.“There would not be over 160 queries after the Preliminary Interest Memorandum (PIM) if there were no buyers for the airline,” they said.

Potential buyers were not comfortable entering into a partnership with the government and were apprehensive of interference, sources explained. Moreover, there were anxieties about the actual level of debt and liabilities and also lack of clarity from the government on these. The government’s insistence that Air India be run on an arm’s-length basis would not allow the buyer to extract synergies between its existing airline and Air India.

The Tatas, for instance, run two airlines in India in a joint venture partnership. According to industry experts, the ministry for civil aviation should oversee the process after consultation with the stake holders instead of leaving it to DIPAM, government’s disinvestment department.

It is to be noted that after the government failed to attract any bids in May, it has not paid its close to 1,1000 employees salary for the month of May. In a letter dated June 6, Meenakshi Kashyap, general manager (IR), wrote a letter to the Air India staff stating that the disbursement of salaries for the month of May 2018 is delayed and the payment is likely to be made on June 15.

Also on June 5, Air India invited bids from Indian/foreign institutions/banks for a government-guaranteed short-term working capital loan of `1,000 crore to be drawn in June.

“Rising fuel costs will add to the losses especially since the intense competition will not make it easy to raise fares,” said Amrit Pandurangi, former director at Deloitte and an independent aviation analyst. The top two airlines in India, budget carrier IndiGo and full-service Jet Airways, both took a hit on account of fuel costs escalation in the fourth quarter of FY2018, with IndiGo’s profits slumping by 73% from Rs 440 crore to Rs 118 crore and Jet posting a loss of Rs 1,040 crore.

Air India losses stand at Rs 5,765 crore (FY2017) and its total debt at Rs 48,781 crore. Though the government tried to sweeten the deal by absorbing part of the debt and passing only Rs 24,576 crore as on March 31, 2017, the financial burden of buying into Air India has also to factor in significant ploughing in of capital for the airline’s turnaround.

A recent CAPA report on the next steps on Air India divestment states that a successful bidder will have to absorb a couple of billion dollars of losses in enterprise restructuring after winning the bid.

The same report also stated that Air India is expected to lose a total of $1.5-2 billion over the next two financial years — FY2019 and FY2020 — and that these losses will need to be funded by the Indian taxpayers. And this is in addition to the $4 billion of public funds that have been used to subsidise the airline since 2012.

The government drew a blank after it invited bids for Air India on May 31. It called for expressions of interest in March for the strategic disinvestment of the state-owned carrier after the Cabinet Committee on Economic Affairs approved the same in 2017. Post the failure to attract any interested bidders, the government, as per the guidelines outlined in DIPAM, had to go to the evaluation committee and also to the alternate mechanism that was specifically formed for speedy decisions on Air India’s privatisation, which civil aviation secretary RN Chaubey had said will be done in two weeks. But there is no movement as yet on the future course the government is deciding for Air India.

 

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