As for private airlines, while up to 100% FDI is allowed, foreign carriers can pick up only up to 49% in them.
In renewed efforts to divest ailing Air India, the Cabinet on Wednesday decided to allow non-resident Indians (NRIs) to control up to 100% in the state-run carrier. The decision is aimed at generating greater investor interests at a time when the government has sought preliminary bids for the sale of its entire 100% stake in the airline. At present, NRIs are permitted to pick only up to 49% in Air India, and the foreign direct investments (FDI) in the state-run carrier is capped at 49% through government approval.
As for private airlines, while up to 100% FDI is allowed, foreign carriers can pick up only up to 49% in them, while overseas investors other than airlines can buy an entire carrier.
Permitting 100% investment by NRIs in Air India would also not be in violation of the Substantial Ownership and Effective Control (SOEC) norms. NRI investments would be treated as domestic investments. According to the SOEC framework followed in the aviation industry globally, a carrier that flies overseas from a particular country should be substantially owned by that country’s government or its nationals.
The disinvestment of Air India would not just add to the government’s non-tax revenue next fiscal but also stop persistent loss to exchequer. The airline hasn’t recorded profits in over a decade and has forced the government to infuse massive capital periodically to remain operational. The government has set an ambitious disinvestment target of Rs 2.1 lakh crore for FY21, against a revised Rs 65,000 crore for this fiscal.
After a failed attempt at Air India divestment in 2018, the government in January this year invited bids again for privatising the airline. Learning its lesson from the 2018 failure, the preliminary information memorandum states that 100% stake will be offloaded, unlike 76% offered in the previous attempt. However, the new owners would be required to continue to use the “Air India” brand name. The government has also retained a provision that substantial ownership and effective control of the airline must remain with an Indian entity.
Besides Air India, the government is also offloading its 100% stake in its low-cost subsidiary, Air India Express (AIXL), and 50% of AISATS, which provides cargo and ground handling services at major Indian airports. The last date for submission of EoI is March 17, while qualified bidders would be intimated by March 31.
Apart from reducing the debt of the loss-making airline, the government has made a number of changes in the eligibility criteria for prospective bidders in its attempt to sweeten the deal. For instance, the debt of Air India and its low-cost subsidiary has been reduced to around Rs 23,286 crore from Rs 60,000 crore. This way the debt left with the company is only on account of aircraft purchase, which is against government guarantees. However, once the sale process to a private entity is over, these guarantees would go.
In addition to the debt of Rs 60,000 crore, the airline and its subsidiary have liabilities worth Rs 25,000 crore. Of this, the prospective buyer would have to take over only Rs 9,700 crore backed by assets. This way, the buyer would have to take over debt and liabilities worth Rs 32,986 crore, against around Rs 85,000 crore earlier. This means that the prospective buyer would now have to take over only 39% of the total debt and liabilities, unlike 61% in the 2018 bid document. Vistara chairman Bhaskar Bhat said this week his airlines was evaluating Air India and would decide soon on whether to bid for it.