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Posted at: Apr 16, 2018, 12:50 AM; last updated: Apr 16, 2018, 12:50 AM (IST)ECONOMY: AIR INDIA DISINVESTMENT

Give wings to fly

Maharaja is on the block again almost after two decades. The task has, however, become more difficult because of huge infusion of funds, enormous debt burden and ill-advised merger of IA and AI, says V Subramanian

DISINVESTMENT of Air India is back in the news again. Although important, it is not being covered as much in the media as it should be possibly because of the political turmoil that is taking place in the country. All that we get to hear is about those who expressed initial interest in buying Air India and those who have declined to bid for the company. 

Doubtful history

Way back in 2000-01, the then government had initiated the process of Air India’s disinvestment. Advisers were appointed for the transaction as well as for legal advice. Ultimately, there was only one bidder left in the fray with whom even the shareholders’ agreement was discussed and settled. It was largely due to the commitment of the then Disinvestment Minister Arun Shourie that there was significant and speedy progress in the entire process.  Unfortunately, the government put it on hold without any specific reason, probably it lacked the political will to go ahead with the disinvestment.

Even now, one is not sure about the purpose. Is it only to ensure fund flows to the exchequer by way of selling AI’s shares? If this is the intent, it is not difficult to raise the fund for the exchequer. The government only needs to direct one of its cash-rich PSUs to invest as it was done in the oil sector. If the approach is so, the entire purpose would be defeated. It is only hoped that the primary objective of AI’s disinvestment is to attract further investments, professionalise its management and make it fly high in a competitive scenario. 

Ground reality

Today, the situation is very different from what it was about 18 years ago. There were just two or three private sector airlines operating in India as domestic carriers besides Air India. Even on international routes it had faced restricted competition from foreign airlines. The bilateral regime during those days was very restrictive as the rights had to be shared only between Air India and other international airlines. Private airlines in India had not been given international flying rights due to lack of a coherent policy.

The scenario has now changed drastically. The share of Air India in international traffic is less than 20 per cent.  Its share in the domestic market has also come down significantly due to competition. Many competitors have also been permitted to fly on international routes. 

Due to a liberal bilateral regime many airlines based in the Gulf countries and South East Asia have been given liberal rights to fly into India and touch down at many Indian airports. This has allowed them to get passengers from many Indian cities and offer seamless connectivity to across continents. At the same time, Air India does not have as many rights to fly to various airports in those countries mainly because they do not have many airports. 

The airports in the Middle East and South East Asia have become virtual hubs for traffic between India and other countries. It is not surprising that Air India has lost a significant share of the traffic to such international carriers in addition to private domestic carriers who were also given rights to fly to other countries. 

It would not be out of place to mention that in the earlier process, the prospective bidders asked for protection (for a limited period) on the bilateral rights that had not been utilised by AI and favourable consideration for new bilateral rights. It is doubtful as to how far the government would be able to accommodate such requests. It is also important to review that commercial and code share agreements that Air India had entered into with other carriers.

Thoughtless merger

It is also pertinent to mention at this stage that Indian Airlines (IA) that was mainly catering to domestic traffic, and Air India, which was operating mainly international flights, were merged. Adverse effects of this merger are still there for any new investor to reckon with. Meanwhile, low cost domestic carriers have gained a big share of the domestic traffic mostly at the cost of Air India. At the same time, it would not be prudent to try to undo the damage caused by this thoughtless merger without causing further damage to the company as a whole. The earlier attempt of disinvestment was to disinvest in both Indian Airlines and Air India separately. That option does not exist now.

Valuation issues

In 2001, the paid-up share capital of Air India was slightly over Rs 150 crore and that of Indian Airlines was also of the same order.  Since 2004, the government has injected more than Rs 27,000 crore as equity capital in Air India. If Air India is listed in the stock market now, the prices will be far below the face value of shares. It will be very interesting to note as to how the bidders evaluate tangible and intangible assets, business prospects, prospects for increase in traffic, the level of competition from other airlines, etc. As of now, the information that keeps floating around has either been culled out from public domain or in the realm of guesswork and imagination. It is understood that the government has not even set up data room for any of the prospective bidders to have access to the data, seek clarifications and assess the overall value of the airline. The prospective bidders will also have to perform lot of diligence gymnastics in the matter of calculation of the airlines assets, liabilities (both real and contingent), litigations, its present value based on future earnings, competition, etc.  

There are also reports that government may take away real estate assets of the company before the disinvestment and that part of the long-term debt that Air India incurred would be honoured by the government and would not be part of the overall liabilities of the company. The extent of debt that the bidders will have to honour is not yet clear. Unless these aspects are made clear no bidder would be able to make a realistic assessment of the valuation of the company.  

Manpower dilemma

One of the strengths of Air India is that manpower (perceived to be excessive) of the company is committed to their work and absolutely loyal to the airlines. They are still struggling to operate in a competitive atmosphere. All that is required is to re-train the employees and motivate them to deliver in a competitive environment. 

Move forward

There is no point in delaying the disinvestment further since the company has proved to be huge drain on the exchequer. It is not a secret that public sector does not have the operational flexibility to compete effectively in a sector where many private sector companies operate, more so in a service sector like aviation. 

Even in the present state of affairs there is no likelihood of Air India improving its services in the short term and giving the best to the passengers. As of today, the threat of extinction is real and there is no other option. 

Instead of worrying about the monetary value that the disinvestment would fetch, the government should look at the credentials, credibility, background of the investor, ability to run the company professionally and make it a success story etc. There are huge challenges to the successful conclusion of the disinvestment process. It would depend a great deal on the determination and political will of the government to take it forward and conclude it successfully. The process has to be taken forward and concluded now since the present government appears to have the necessary political will. If we miss this opportunity, Air India will disappear into oblivion.

— The writer, a former secretary to the Government of India, has also served the Ministry of Civil Aviation as additional secretary & financial adviser


The present logo of the new 

airline is a red flying swan with ‘Konark Chakra’ in orange, placed inside it. 

This figure first made appearance in Air India way back in 1946.

Air India disinvestment

Maharaja’s lineage

  • 1932: J.R.D. Tata set up India’s first air carrier, Tata Air Services, later named as Tata Airlines
  • 1946: It became a public limited company, Air India
  • 1948: It became Air India International with Maharaja as its mascot
  • 1953: Govt nationalised Air India, Tata remained chairman until 1977
  • 2007: Air India and Indian Airlines merged 
  • 2017: Govt decided to privatise Air India

The downfall 

  • Air India has been making losses since merger of Air India and Indian Airlines in 2007
  • TAP/FRP provided equity infusion of Rs 30,231 crore up to 2021  
  • Till date, equity of Rs 26,545.21 crore has been infused in Air India
  • Total debt is Rs 48,781.3 crore

The tough call 

  • June 28, 2017: Cabinet approved strategic disinvestment of AI and also approved constitution of an AI-specific Alternative Mechanism headed by Finance Minister 
  • April 3, 2018: Government invited expression of interest for strategic disinvestment of its 76% stake in AI along with AI’s 100% stake in Air India Express and 50% stake in Air India SATS Airport Services through open competitive bidding route
  • May 14, 2018: Last date for submission of EOI to transaction adviser EY


Air India Ltd

  • Has operating fleet of 115 aircraft 
  • Has around 12.3% share of the 

Indian domestic market

  • Network covers 93 destinations; 54 domestic, 39 international 
  • Permanent employees 11,214

Air India Express Ltd

  • Has a fleet of 23 Boeing 737- 800
  • International destinations include Dubai, Sharjah, Abu Dhabi, Singapore etc
  • 90 permanent employees 
  • Rs 296.7 crore net profit in 2016-17
  • Rs 2,598.3 crore debts 

Air India SATS

  • A leading provider of food solutions and gateway services 
  • 60 years of ground handling and catering experience
  • Presence in international airports of Bengaluru, Delhi, Hyderabad etc
  • 11,813 contract employees
  • Rs 66.1 crore net profit in 2016-17
  • Rs 196.3 crore debts
Sources: DIPAM, MoF, AI, Lok Sabha, Rajya Sabha, PIMT

ON THE BLOCK Three entities are up for sale


AI          100% by Go     India’s flag air carrier for over 85 years

AIXL          100% by AI     Air India Express provides services between India and some international destinations

AISATS          50% by AI and 50% by SATS Ltd Provides ground and cargo handling services at some airports

Not for sale AI subsidiaries spared


AIESL          100% by AI         Maintenance, repair and overhaul of engines and airframe

AIATSL          100% by AI         Ground handling and cargo handling services

HCI                  80.3% by AI         Owns and operates two Centaur hotels (Delhi and Srinagar) and Chef air kitchen units (Delhi and Mumbai)

AASL          100% by AI         Alliance Air -- Provides connectivity to tier-II and tier-III cities in India and also links these cities to metro hubs

AIESL (Air India Engineering Services Ltd), AIATSL (Air India Air Transport Services Ltd), HCI (Hotel Corporation of India), AASL (Airline Allied Services Ltd)


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