Air India has long been a mascot for brand India, but by 2009 the state-run carrier began reeling under a huge pile debt and its services started deteriorating.
Air India has long been a mascot for brand India, but by 2009 the state-run carrier began reeling under a huge pile debt and its services started deteriorating. Air India, under intense competition from leaner, more efficient and often-cheaper private airlines piled up a debt of over Rs 52,000 crore, with about Rs 28,000 crore in working capital debt, and about Rs 4,000 crore per year in interest burden alone. It has not turned the profit in 10 years, since at least the year 2007.
As the national carrier, Air India slowly turned into a taxpayer-money guzzling machine ridden with inefficiencies and mismanagement, after which the Union Cabinet headed by Prime Minister Narendra Modi approved disinvestment of this debt-laden air carrier. The government, since then, has been slowly and systematically going forward with the plan, with Tata Group, IndiGo and Bird Group expressing interest in either buying the troubled national carrier or buying parts of it.
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However, their interest in Air India has so far not materialised into what can be called as one of the biggest privatisation deal in the history of India. With this, it seems that the government will be missing the target of disinvestment by early 2018.
Amid the government’s efforts to explore the sale of Air India’s stakes, a parliamentary panel concluded that it was not the right time to time to privatise the national carrier and it should be given at least five more years to revive. Interestingly, two days after the parliamentary panel’s recommendations, the government, without paying much heed, approved foreign direct investment of up to 49% under approval route in Air India; perhaps an attempt that can be seen as expanding the scope of disinvestment of the national carrier to not only domestic players, but to foreign players as well.
Congress quickly reacted to the decision, saying that the government does not care about the national carrier. The government, certainly, does not seem to care, but about the opposition to the disinvestment decision, and rightly so.
Aviation think tank Centre for Asia Pacific Aviation recommended against stalling the disinvestment process. The think tank said postponing disinvestment would only erode its value. CAPA estimated that the government would need to inject additional $2.5-3 billion funding, and these may be conservative estimates.
CAPA also believed that allowing foreign players in the disinvestment process was necessary. “No major Indian corporation from outside of aviation will invest in such a complex project without an experienced strategic partner. Allowing foreign airlines to participate will increase the number of interested bidders and the valuation,” it said, going against the recommendation of Rs 30,231 crore turn-around plan and five years of time to the airline.
With the Cabinet approving the FDI in Air India, the proposal is likely to be debated in the Parliament, most likely in the upcoming Budget Session.