Sunday, July 09, 2017

How much is Air India really worth? Investment bankers weigh in

Air India’s Staff Colony-II in Kalina is separated from the Mumbai International Airport to its north by a public road and the airport’s boundary wall. The tree-lined road, aptly named Air India Road, passes the Air India Sports Club and one more colony of the airline, as well as an Air Force colony and a graveyard that lies inside the airport, skirting the boundary wall all the way to Kurla.

Inside the colony (Air India has two more colonies in the Kalina area), rows of buildings are arranged along with parks for children, a playground and plenty of greenery. The hunky-dory feel, however, gives way when one takes a closer look at the buildings. The ground-floor flats, which were prone to flooding, are unoccupied. The Mithi river flows under the airport and to the east of the colony. After the devastation of the 2005 Mumbai floods, when doors had to be broken to rescue kids trapped inside, the ground-floors flats were abandoned.

They look haunted now. Adding to the atmosphere, just across the airport wall stands a single aircraft — permanently parked, the United Breweries logo clearly visible from the colony — reminding all about liquor baron Vijay Mallya, and how an airline (Kingfisher) can sink and take a lot more down with it. The colony is in many ways a nice analogy for Air India — some nice parts, some untouchables and a looming uncertainty. The airline has some great assets (land worth Rs. 8,000 crore), some profitable businesses in subsidiaries (budget operator Air India Express which connects India to the Gulf turned in a profit of Rs.297 crore last fiscal), huge debt on its books (Rs. 53,000 crore) and therefore a loss-making mainline operation.

Can privatisation turn around the government owned flag-carrier? Does Indigo, the crown jewel of Indian aviation sector today, or the Tatas, who had started the airline seven decades back, have it in them to take on the challenge (Indigo has clarified that they would be interested in Air India’s international operations, including Air India Express)? There can be many answers. Here’s one:

“To turn around an old legacy airline that has never made a profit is a challenging job even for the smartest owners… unless given a free hand to make changes, the airline is untouchable,” says Nirmalya Kumar, a former senior executive with the Tatas and now a professor at Singapore Management University and INSEAD Emerging Markets Institute.
09/07/127 Suman Layak/Economic Times