Air India set to shed flab as cabinet approves disinvestment of public carrier, GoM to look into method

With mounting loss of state-run carrier Air India touching unrealistic heights, the Centre in an attempt to rid itself free of the unproductive behemoth has in-principle given the nod for its divestment paving the way for privatisation of the airline, Union finance minister Arun Jaitley said on Wednesday.

"In-principle approval for Air India divestment has been given. The civil aviation ministry's proposal for the formation of a group under the chairmanship of the finance minister to decide the modalities of divestment process has also been accepted," he said.

The government will form a group of ministers to look into the disinvestment process of the public carrier and how to go about it. 

Surviving on taxpayers' money, Air India has been in the red for long and various proposals, including government think tank Niti Aayog's suggestion for complete privatisation, have been made.

The airline has a debt of more than Rs 52,000 crore and is surviving on a Rs 30,000 crore bailout package extended by the previous UPA government in 2012.

According to The Hindu, the Union cabinet was supposed to decide the fate of the state-owned carrier Air India by deliberating on three options to divest the government’s majority stake and consider the creation of a special purpose vehicle (SPV) to get rid of a major portion of its more than Rs 50,000 crore debt.

The report said the three options on the table were a full 100% sell-off, a 74% stake sale or retaining a 49% share in the airline, as per the note prepared by the Department of Investment and Public Asset Management (DIPAM) for the Cabinet's consideration, officials aware of the development said.

 Air India set to shed flab as cabinet approves disinvestment of public carrier, GoM to look into method

File image of Arun Jaitley. Reuters

Earlier, in May end, Jaitley had favoured disinvestment of the loss-making Air India, saying the airlines market share was just around 14 percent whereas the debt burden is Rs 50,000 crore. This was the clearest indication yet from the current NDA regime on possible stake sale in Air India, which was staying afloat on taxpayers money. Air India's market share was around 14 percent while the debt is Rs 50,000 crore while the government has not put in money in private carriers, Jaitley said at Dialogue@DDNews programme.

To run Air India, around Rs 50,000 crore have been put in and that money could have been used for promoting education, the minister said. "In this country, if 87 or 86 percent flying can be handled by the private sector... then they can also do 100 percent," Jaitley said.

The finance minister's in-principle nod also echoed in a report released by aviation think tank before Jaitley's press conference, PTI said.

"Subsidising Air India to the tune of hundreds of millions of dollars a year is neither sustainable nor desirable for a government which has so many other pressing economic and social priorities," CAPA said in its report.

CAPA also said that in a highly competitive and challenging environment, Air India cannot continue to be funded by taxpayers to fight private capital. "The national carrier has already absorbed $3.75 billion of equity from the government with no end to the need for subsidies in sight," it added.

According to the report, the airline's small operating profit in the financial year 2016 was viewed in some quarters as a sign that it had turned around, however, it lacks a viable business model or a clear long term direction. The airline also remains hamstrung by massive debts, the report said.

Hiving off its low cost arm Air India Express and divesting its ground handling subsidiary Air India Air Transport Services Ltd could be among the effective restructuring measures, it added.

Air India has been reporting losses for at least four years, says the country’s top auditor. This under-reporting is not any insignificant amount but a sum of over Rs 6,800 crore between 2012-13 and 2015-16. The airline had, as expected, said in March that it did not do any under provisioning while asserting that its Rs 105 crore operating profit in FY16 was indeed a profit, never mind the observations of the Comptroller & Auditor General (C&AG) that the airline actually posted an operating loss of Rs 321 crore last fiscal.

In June, Niti Aayog vice-chairman Arvind Panagariya had said that though his organisation already gave its recommendations on Air India selloff, the government has to take a call on several crucial aspects of the proposed sale.

There was all-round cheer when Air India had reported a modest operating profit for 2015-16, for the first time since the two erstwhile airlines were merged to form the present entity. But in November 2016, in the first quarter immediately after this euphoric 12-month period, the airline had slipped back.

According to Minister of State for Civil Aviation Jayant Sinha, Air India had reported an operating loss of Rs 264.14 crore between April-June 2017 quarter when the target was an operating profit of Rs 87.28 crore for these months. In other words, the airline was way off the mark, by about Rs 350 crore. Not only did it not report any operating profit, it actually made operational losses of close to Rs 3 crore a day during Q1.

With agency inputs

Updated Date: Jun 28, 2017 20:28:37 IST