Monday, July 31, 2017

Air India sale: Significant debt writeoff seems to be a foregone conclusion

New Delhi: The government may consider writing off a significant portion of Air India’s debt pile, in a bid to make the airline attractive for prospective suitors. The total debt on the airline’s books is Rs 48,887 crore as on 31 March this year, which is bigger than India’s health budget this fiscal. Should the government be writing off such a large amount, when this money and the separate equity infusion into this loss making airline could have instead been used for larger public good? Well, one view is that such a one-time write off will stave off future investments into the bleeding airline. Another, and a diametrically opposite point of view, is: why should the airline be privatised if the government has already decided to swallow the bitter pill and write off a significant portion of the debt? Shouldn’t induction of professionals on the airline’s board help turn it around, instead of the government ceding control through disinvestment?

Not just a large hair cut, the government may also have to hive off real estate and other land assets besides loss making subsidiaries into a separate entity - not every investor would be interested in these. Also, operations like the ground handling subsidiary may not be of interest to an airline bidder. These assets would have to be set off against the aircraft-related debt to unlock value .

Anyway, fresh data presented in Parliament this month showed Air India’s annual debt servicing obligations alone come to about Rs 6,000 crore, which is 50 percent more than previously thought. This translates to about Rs 500 crore each month in interest payments or about Rs 16.5 crore each day of the year. IndiGo, which has already expressed interest in bidding for the overseas operations of Air India, has said it does not plan to take on the airline’s debt. One doubts if other serious bidders would, either.
31/05/17 Sindhu Bhattacharya/First Post