Air India privatisation: National carrier to be split in 2 before sale

To fast-track the privatisation of state-run Air India (AI), the government is likely to first divide the enterprise into two: AI and Air India Express (AIE), which undertakes the airline’s profitable West Asia operations, would be combined and put up for sale; another special purpose vehicle (SPV) that will include AI’s Rs 32,000-crore working capital debt, its other subsidiaries including Alliance Air and assets such as land and buildings, will be monetised later.

According to official sources, while a Cabinet note detailing this plan has been prepared on the lines of the recommendations of a ministerial group headed by finance minister Arun Jaitley, the idea is to conclude the sale of AI-AIE by the end of the fiscal and the undertake the balance transactions in due course.

The sources added that along with AI’s 12,000-strong workforce, its headquarters building at Delhi’s Gurudwara Rakabganj Road and 115 aircraft, the prospective buyer of AI-AIE will also have to take over the airline’s Rs 20,000-crore aircraft-related loans and AI’s Rs 8,000-crore dues to oil retailers.

Though valuations are yet to be done, officials reckon that government’s receipts from the sale this year could be close to Rs 15,000 crore.

Separately, the proposed SPV will negotiate for settling AI’s Rs 32,000-crore debt which could see banks taking a haircut. During informal talks with the government, lenders to the carrier have understood to have expressed their willingness to negotiate with it on how to settle the AI loans.

AI’s physical assets include its aircraft fleet (including Boeing Dreamliners), land parcels/ buildings in India and abroad and also its valuable bilateral flying/landing rights and parking slots at airports across the world.

Besides issues related to the debt, the government would also have to take a call on whether it would like to retain a minority stake in AI, the sources said.

While efforts have been made to revive the airline in the past, AI has not reported a profit in at least a decade; in 2015-16 it posted an operating profit of Rs 105 crore and reduced its net loss to Rs 3,837 crore compared with Rs 5,859 crore in 2014-15. Retaining the airline in its fold is a much more expensive proposition for the government than transferring the ownership. The government would require to infuse amounts much higher than the Rs 50,000 crore proposed under a revival plan for AI, which entails it to continue as state-run entity. The Centre has already infused about Rs 30,000 crore in the airline over the past few years.

It is expected that a foreign airline may tie up with an Indian airline to bid for the national carrier. Current foreign direct investment rules allow foreign airlines to buy up to a 49% stake in Indian airlines.

AI has four subsidiaries — Air India Charters (which owns AIE), Airline Allied Services (which owns Alliance Air), Air India Air Transport and Air India Engineering Services — and various downstream arms and joint ventures.