Despite equity support from the government, the financial mess at Air India is unlikely to abate soon, as the cash-strapped carrier would not be able to bring in funds through disinvestment or an IPO for a period of at least five more years.

This is because of two reasons: the Union Cabinet?s decision to list only profit-making public sector enterprises (PSUs), and Air India being expected to suffer substantial losses for a period of at least two more years.

When asked whether Air India?s divestment is possible under a policy announced on November 5, Civil aviation minister Praful Patel on Saturday told FE, ?Not at all. That is not on the cards.? ?The Cabinet policy on disinvestment is only for profit making CPSUs. Air India divestment is not possible in this framework,? he said, after inaugurating India?s first aerospace special economic zone built in Belgaum by Karnataka-based QuEST Global. The 300-acre SEZ, founded by Aravind Melligeri and Ajit Prabhu, involves an initial investment of Rs 150 crore.

Patel has so far maintained that the government will try to list Air India on the stock exchange in the ?near future? but this is the first time he has ruled out any divestment. The minister however, said the government has agreed to provide equity support of Rs 800 crore to Air India in the next two months. The Rs 800-crore equity infusion requires a Cabinet clearance, and it is likely to come in two tranches of Rs 400 crore each.

Disinvestment secretary Sunil Mitra on Friday ruled out any exception for loss-making PSUs and said the government will stick to the Securities and Exchange Board of India rules while divesting government stakes in such companies.

Sebi rules state that a company going for an IPO should have a track record of distributable profits for three out of preceding five years, besides four other key conditions. However, an exception is allowed to a company not satisfying any or all of the five conditions.

Such a company would have to go through a ?mandatory book building issue?, wherein qualified institutional investors (QIPs) need to subscribe a minimum of 50% stake being offered for sale. According to a disinvestment department official, the government will stick to the criteria of ?three-year-profit rule? while divesting its stake in companies.

Since Air India has not made any profits in the last two years and its losses are expected to continue for at least two more years; the three-year-profit rule would mean it cannot be a disinvestment candidate for at least five more years. Also, a lack of funds could potentially exacerbate the problems at Air India, which is desperately seeking financial support from the government.

Air India suffered losses of Rs 5548 crore in 2008-09, up from Rs 2,400 crore in 2007-08. Officials expect it to incur further losses of at least Rs 5,000 crore in the current fiscal. The turnaround at Air India could take another 4-5 years, according to a secretary-level official.

The government has agreed to an equity infusion of up to Rs 5,000 crore into Air India over a period of three years, subject to substantial cost cuts and revenue enhancement. Air India?s market share rose to 18.6% in October from 17.5% in September, according to data from the directorate-general of civil aviation. It?s seat factor, which is the number of seats booked in proportion to total seats, has improved to 72.8% in October from 67.5% in September.