Monday, July 10, 2017

Air India privatisation: Why Centre must keep 49 pct equity

Is the loss-making Air India worth Rs 5 lakh crore as Manish Tewari of the Congress argued in The Indian Express last week ( Because, if it is, the government is selling it for a song—and when it does, the old suit-boot-ki-sarkaar charge will resurface and, once again, the government will find it hard to take critical decisions for fear of benefitting the rich.
Given Air India’s massive and continuing losses—likely to be around Rs 3,600 crore in FY17 — and debt of over Rs 50,000 crore, it is difficult to believe the value would be anywhere near this. More so since, the world’s most valuable airline is Southwest Airlines and that has a market cap of around Rs 2.5 lakh crore—and that’s when it has a net profit of around Rs 14,300 crore (2016 was Southwest’s 44th consecutive year of profits while Air India has been making losses for several years in a row). Even IndiGo, which is the front-runner to buy Air India today, is worth under Rs 40,000 crore — and that value has to do with its FY17 post-tax profit of Rs 1,650 crore.
Part of the reason why Air India is thought to command huge valuations is because of its real estate like the iconic Air India building in Nariman Point, large number of bilateral and landing slots in most global airports — and yes, a lot of art though some, like a Jatin Das, may just have been lost to theft as The Times of India reported. As FE reported last week, the real estate may be a bubble since the title belongs to various government departments ( who may not relinquish this easily. In any case, given the sad VSNL experience where it took close to 15 years after its sale to the Tatas to resolve the land issue, it would be best if real estate was retained by the government and kept out of the sale — as and when the title is clear, the assets can be sold and the money retained by the government.
10/07/17 Financial Express