Thursday, May 25, 2017

Air India still on a wing and prayer. Is it time to privatise it?

Air India could finally be getting on the nerves of the government. In an interview with Financial Express, Ashok Gajapathi Raju, the Civil Aviation Minister, said the Rs 30,000-crore bailout plan charted out in 2012 to save Air India has not solved problems. “TAP [Turn Around Plan] or the financial reconstruction plan were good intentions and money has been infused from the government’s kitty, but it has not solved any problems,” said the minister.

On the operational front, there are signs of a turnaround with improvement in passenger load factor, on-time performance and utilisation of aircraft. However, the company is facing a legacy issue which is pulling the national carrier down.

And so it begs the question: is it time to privatize the national carrier?

Its high operating costs do not leave room for the airline to take advantage of low aviation fuel prices the way other aviation companies do. As a result, the company barely makes any operating profit. In fact, it did turn profitable at the operating level in FY16 after a decade of losses.

Air India has over the years managed to pile up Rs 51,367.07 crore of debt. It managed to reduce it by Rs 5,000 crore by opting for a sale-and-lease-back of its wide-bodied Dreamliners. One would think that a similar arrangement can take care of the remaining debt, but the company has a debt of only Rs 15,900 crore on account of aircraft acquisition. There is a working capital component of Rs 7,500 crore, but it’s the remaining debt which cannot just be wished away.

Reports say that banks have refused to convert their debt to equity, learning from the Kingfisher experience that by converting it they lose all recourse to recovery. Also, Air India being an unlisted company, would first have to be listed for the banks to be able to sell their holding and recover money.There are a few alternatives available to the airline and divestment is not one of them. Many observers had spoken of divesting government’s stake in the company but the question is who in their right mind would want to pick up a company that is barely making operating profits, is on the verge of defaulting and carries a mountain of debt.
24/05/17 Shishir Asthana/Money Control