Air India sale: With a likely profit of Rs 297 cr, AI Express only shining star among subsidiaries

New Delhi: The government has begun deliberations over the methodology for disinvesting stake in Air India and its subsidiaries. IndiGo, India’s largest airline by passengers, has said it would be interested in the main airline and just one of its subsidiaries – Air India Express. Even here, IndiGo’s interest would perhaps be limited to the combined international operations of AI and AI Express. Will the government actually carve out the lucrative international operations of AI and AI Express for the convenience of just one potential bidder, this remains to be seen. But IndiGo’s pick of the lot is interesting, since these are the only two parts of the whole Air India pie which have reported improved financial performance last fiscal. Air India’s subsidiaries are Air India Express, Alliance Air, Hotel Corporation of India, AIATSL and AIESL.

Remember, the disinvestment of Air India is a long and difficult task since the airline has assets in terms of routes, international airport slots and bilateral flying rights as well as owned aircraft but is also saddled with Rs 48,876. 81 crore of debt. It has been losing domestic market share to nimble private airlines despite surviving on government dole for the last many years. There has been some talk of the government writing off a large part of the debt or even the entire thing but this wouldn’t be an easy decision to take. Either way, the Group of Ministers headed by Finance Minister Arun Jaitley, tasked with laying the disinvestment roadmap, has only held one meeting till date. And sources tell us senior officials of the ministry of civil aviation have sought independent studies from two aviation consultants, with suggestions on how to carve out the assets of the airline and get more than just one bidder interested in the sale.

 Air India sale: With a likely profit of Rs 297 cr, AI Express only shining star among subsidiaries


In this backdrop, it is interesting to see that only Air India and Air India Express reported improved financial performance last fiscal – the other subsidiaries remained mired in red ink. According to a written reply in Lok Sabha on Thursday, while Air India could show a nominal operational profit and a narrower net loss compared to the previous fiscal, Air India Express could also show a net profit though lower than what was reported in 2015-16. Hotel Corporation of India, AI Engineering Services, Alliance Air remained loss making in 2016-17. Will buyers then want the airline along with all of its subsidiaries?

A senior Air India official said the figures given in Lok Sabha on Thursday were provisional and the accounts had not yet been finalised. According to these figures, Air India’s operating profit last fiscal may be Rs 215 crore, not Rs 300 crore as reported earlier. Why the figures differ within a matter of weeks – both operating profit have been taken from written replies in Parliament in the current session – is a mystery. The lower, Rs 215 crore figure may be “more realistic” this official said. Also, the airline could report a narrower net loss at Rs 3,728 crore versus Rs 3,836 crore in 2015-16. That still translates to over Rs 10 crore net loss each day!

Air India Express could report a net profit of Rs 297 crore for FY17 versus Rs 362 crore last fiscal.

This piece in Hindu Business Line quotes AI Express CEO K Shyam Sundar as saying the net profit in 2016-17 was significant “as the competition from Indian private carriers increased considerably during the year, added to that was the sluggishness of Gulf economies.” The airline’s revenue increased by 14 percent to Rs 3,335 crore on better utilisation of assets, lowering unit costs by about 5-7 percent. The average daily aircraft utilisation rose to 12.2 hours. Air India Express operates in the lucrative Gulf region besides other middle eastern destinations as well as South East Asian stations.

The remaining subsidiaries continue to report losses. Hotel Corporation of India could report a net loss of Rs 42 crore in 2016-17 against Rs 57.75 crore in the previous fiscal, an improvement but still a net loss. HCI owns and operates the Centaur Hotels at Delhi and Srinagar besides flight catering units.

Alliance Air is expected to report a net loss of Rs 200 crore last fiscal against Rs 198.75 crore. Alliance Air operates in smaller, tier II and tier III cities, acting as a feeder for Air India and Air India Express. For the engineering (AIESL) subsidiary, the net loss has widened to Rs 652.78 crore, from Rs 558.62 crore in the previous fiscal. For the ground handling (AITSL) subsidiary, likely operational profit figure is Rs 105 crore, similar to the previous fiscal.

It is clear from the pace at which the Air India disinvestment processes are progressing that any serious bidder outside of IndiGo would likely throw its hat in the ring only when the contours of the sale are clear. There have been indications that the Tatas – the first private party informally sounded out by the government – may not be keen on bidding for Air India despite the airline’s Tata legacy and the common history binding the group and India’s national carrier.

In this situation, the government needs to be clear on some significant caveats in the sale process: Will it allow foreign airlines to bid at all, will it sell out completely or retain equity share in Air India, will it carve out international operations separately and finally, how much of the debt will be written off, if at all.

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Updated Date: Jul 27, 2017 18:55:22 IST