Air India: Privatisation in air

Written by Rhik Kundu | Updated: Mar 19 2014, 15:20pm hrs
Air IndiaPanel suggests sell-off in Air India over a five-year period (AP)
Talks of privatisation of loss-making Air India, which has a debt of over Rs 44,000 crore in its books, has received a push with a high-level committee asking the government to dispose of at least three-fourths of its stake in the ailing airline.

The national transport development policy committee (NTDPC), headed by former RBI deputy governor Rakesh Mohan and set up in 2010, has in its recently released report recommended the government to reduce its stake in the flag carrier to 26% over a five-year period.

The report was released the Prime Minister Manmohan Singh earlier this month.

A plan for progressive disinvestment of the governments stake in Air India over a period of three to five years, based on a phased scheme with defined milestone, should be achieved, the report said.

(Air India) needs to be recapitalised, restructured organisationally, its working capital debt burden written off and some divisions made independent and corporatism (introduced) with government retaining perhaps a 26% stake, it added.

The report further noted that the national carrier's future prospects remain precarious as the airline is overmanned and has failed to invest in technology needed to retain its competitiveness.

Air India must therefore be provided the opportunity to reinvent itself with new professional management, managerial and operational autonomy, while taking over all existing productive assets, the report said.

The airline is expected to post losses in the region of Rs 3,900 crore for 2013-14, senior company executives estimate, despite a projected 18% jump in revenues to R19,500 crore.

The Union Cabinet had in 2012 approved a turnaround plan (TAP) for the airline under which the government would infuse over R30,000 crore in

the airline over nine years, starting from 2012-13.

The airline, however, had to raise Rs 2000 crore from banks, at about 11-12% interest rate, after the government was unable to give the airline the Rs 3,500-crore promised for the current fiscal.

The privatisation of Air India is now a certainty and will be a priority on the agenda of the next government, said a recent Centre for Aviation (Capa) report.

Despite the fact that Air Indias performance has improved significantly across operational, commercial, customer service and financial metrics under the current management team, we rule out the possibility of Air Indias return to profitability under its current ownership structure, given the underlying structural problems and fast changing market dynamics, the Capa report said.

With the carrier expected to post continued losses, the next government which takes office in mid-2014, must finally bite the bullet and commence the privatisation of Air India, it added.

The total debt of Air India stands at about Rs 44,000 crore, a senior Air India official had earlier told FE. Half of this is aircraft related as the airline had taken a huge amount of loan to buy new aircraft, while the remaining amount, which falls in the region of about Rs 18,000 crore, are long-term working capital loans.

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