New Delhi: Should the government retain a minority stake in Air India to preserve the ‘national carrier’ tag, even after it agrees on the modalities to sell off this loss-making airline? If retaining a minority stake would be the consensus among the wise men in New Delhi tasked with Air India’s future, it would indeed be a travesty. The national carrier tag was important in the decades when India was a closed economy, when Air India was the sole airline operating on the domestic as well as on international skies and when it was thought to represent Indian hospitality.
But today, when private airlines own a majority of the domestic market by passengers and when overseas routes too are no longer a monopoly of the Maharaja, what sense does it make for the government to retain any control whatsoever in Air India? The airline needs to be handed over in entirety to a private bidder, as and when the selloff process begins. Not only will this intent of complete exit provide assurance about government’s sincerity regarding the selloff, it would also signal complete freedom for the new owner to take critical decisions – even with a minority equity share, the government may otherwise well interfere in decision making.
Speaking at an interaction with media today, Niti Aayog Vice Chairman Arvind Panagariya said that though his organisation has already given its recommendations on Air India selloff, the government has to take a call on several crucial aspects of the proposed sale:
1) Whether the airline should be sold off at all
2) If the decision is in favour of a selloff, then should the universe of buyers include foreign buyers or should the sale be restricted to Indians?
3) Should the government retain some stake in the airline to retain its ‘national carrier’ tag
4) Should the entire Rs 52,000 crore debt on Air India’s books be written off or should only a part of this be written off by the government.
Panagariya said that Niti’s recommendations have been submitted to the Prime Minister’s Office, and now the PMO along with the Ministry of Civil Aviation will have to take a call on the selloff. While declining to divulge details of his recommendations on Air India disinvestment, Panagariya was quite clear that the current debt on the airline’s books was “very very large and selling it with this (debt) will be very very difficult. Even if the sale were to be open to both, domestic and foreign buyers, will the government write off the entire debt or only a part of it – that decision needs to be taken”.
An official close to developments had told Firstpost earlier that it is possible to break up Air India into two distinct parts: 1) The airline itself with aircraft and related assets and 2) Air India’s subsidiaries and the real estate. This official had said that the sensible way to get maximum value in any selloff would be to offload just the airline to a prospective buyer. The government could then simultaneously dispose off the subsidiaries and real estate for a total consideration of close to Rs 20,000-21,000 crore. In fact, an inter-ministerial group has already begun deliberations in the second part, specifically on monetising land assets.
The same person had further said “All this is known to people involved in the selloff process. Now, the ball is in DIPAM’s (Department of Investment and Public Asset Management) court. Once DIPAM accepts the proposal drafted by Niti Aayog, things will move forward. DIPAM will take the proposal to the Cabinet Committee on Disinvestment. If this committee approves the proposal, then ads will be put out for transaction advisors and valuers.” DIPAM is expected to form several committees to examine and fine tune the selloff process, comprising top officials of the ministry of civil aviation, Air India, Finance Ministry and DIPAM itself - the entire selloff process of Air India could take at least 8-12 months.
As for the airline, any prospective buyer must agree to bear about Rs 20,000 crore of aircraft loans and another Rs 6,000-7,000 crore of working capital loans. “The current market value of aircraft is higher than the loans. And of the Rs 30,000 crore total working capital loans, the bidder may be asked to take on only Rs 6,000-7,000 crore. In return, the buyer gets a fleet of 43 owned aircraft, valuable domestic and international slots (for which buyers are usually willing to pay a premium), parking bays etc,” the person quoted earlier had said.
The government has already pumped in over Rs 25,000 crore into Air India under a Turnaround Plan approved by the UPA government in 2012. And it is committed to pump in another Rs 25,000 crore by 2032 – something it now thinks is a waste of resources. “The thinking is, why invest such a huge additional sum in the airline over the next 15 years? We are looking at all options and a roadmap should be ready in the next three months,” a senior official in the ministry of civil aviation said.
So will a foreign investor (or a foreign airline) be allowed to participate in the Air India selloff process? Both, Civil Aviation Minister A Gajapathi Raju and his deputy Jayant Sinha have declined to get into specifics and did not directly answer a question on whether a foreign airline will be allowed to pick up a stake in Air India last month. Currently the foreign Direct Investment rules allow a foreign airline to hold a 49 percent stake in a domestic airline. This provision has been used by Singapore Airlines to acquire a 49 percent stake in Vistara with Tata Sons acquiring the remaining 51 percent. Similarly, AirAsia Berhad used this provision to launch AirAsia India. Remember, Qatar Airways has been hinting at starting Indian operations by starting an airline from scratch in India. Will the Indian government allow Qatar to pick up a stake in Air India? If the government wants the selloff process to be successful, it must be flexible.
Published Date: Jun 02, 2017 16:02 PM | Updated Date: Jun 02, 2017 16:02 PM