Friday, July 07, 2017

Who would buy Air India?

Mumbai: A famous brand in the world’s fastest-growing aviation market, sitting on valuable slots at international airports and able to borrow cheaply thanks to being state-owned: Air India ought to be hugely profitable. But under state ownership it has guzzled public funds as hungrily as its jets consume kerosene. Last week the authorities threw in the towelette and announced an “in principle” cabinet agreement to privatise it. The chances of that going ahead rose on June 30th when IndiGo, a well-run private low-cost carrier, said it wanted to bid.

Whoever seizes the controls can expect a hard task. Air India has struggled since private rivals were first allowed in 1994 to fly in India’s skies. Together with Indian Airlines, another state-owned carrier with which it merged in 2007, it has a domestic market share of just 13% and is shedding one percentage point or so every six months. A bail-out of 300bn rupees ($4.7bn) agreed in 2012 was meant to stop losses, but has failed.

The company’s top bosses last year claimed they had steered the airline to its first operating profit for a decade, helped by a fall in the price of aviation fuel, only for the state auditor to accuse it of incorrect accounting. Air India blamed accounting standards for the difference. The cash it made would not have covered interest payments on its debt of some 520bn rupees. Analysts calculate that its operations are worth less than that. To facilitate a sale, the government could restructure its borrowing, much of which is owed to state-owned banks. It could also spruce up the carrier’s balance-sheet by selling some of Air India’s valuable real-estate holdings in Mumbai.

IndiGo, which has a 41% market share at home, is clearly most interested in Air India’s overseas operations. These are underpinned by its slots in rich-country airports such as Britain’s Heathrow, which are worth tens of millions of dollars. But the prospect of it bidding for a rival with a third of its market share but nearly twice its staff numbers (Air India has around 20,000 employees) sent shares in IndiGo’s parent swooning.
06/07/17 Economist

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