National Aviation Corporation of India Ltd (Nacil), the entity created following the merger of state-owned Air India and Indian Airlines, is looking to foreign carriers for investment in its airline. The loss-making Air India, sources told FE, has started sending feelers regarding a possible stake sale to carriers like Singapore Airlines and German airline Lufthansa.
The move follows a recent proposal in the Cabinet by civil aviation minister Praful Patel to allow foreign direct investment of up to 25% in Indian carriers. Before the merger, air India had losses of Rs 2,400 crore for the financial year 2006-07, according to government estimates.
Sources in Nacil said Patel is not only keen on improving Air India?s financials, but also wants the airline, which is losing marketshare to private carriers like Jet Airways and Kingfisher Airlines, to hire an expatriate director on the board. The erstwhile Indian Airlines had a domestic marketshare of 60% in 2006, but now the share of Air India?under which both domestic and international operations now fall?has slipped to 35%.
Air India had recently approached the Tata group to divest 10% stake, but with no result. However, according to an investment banker, Air India?s total value is around 2,000 crore , and that if 25% FDI is allowed, it can raise no more than Rs 500 crore. ?Though Air India has a number of physical assets, it is a public sector undertaking and, hence, the market value is dragged down,? he said. While that may be so, the value of Air India?s net assets was valued at Rs 3,165 crore in 2006.
Meanwhile, email queries sent to Patel and the Tata group did not elicit any response.
It may be recalled that the carrier was pushing for an IPO in 2008, but the slowdown in capital markets forced it to defer its entry into the markets to raise equity. Earlier, in 2002, divestment plans for Air India were under active consideration by the civil aviation ministry.
Meanwhile, an aviation analyst points out that on overseas routes, Air India has been steadily losing marketshare over the past few years to international carriers like British Airways, Singapore Airlines and Lufthansa. Domestic private carriers like Jet Airways and Kingfisher Airlines are also expanding aggressively to international destinations, making a further dent in Air India?s load factors.
?Air India?s marketshare on international routes now stands at 10%, compared with 40% a decade ago. By sending feelers to international carriers, Nacil is readying a new master plan to revive the airline?s fortunes,? the analyst said.