Sunday, July 16, 2017

What is the divestment of Air India all about?

The Union Cabinet on June 28 gave its ‘in-principle’ nod to divest stakes in Air India — a wholly owned government airline. The Cabinet decided to go for Air India’s strategic disinvestment, which means the government is willing to shed a substantial portion of its stake and hand over the management of the ailing airline to the private sector. The Cabinet also approved strategic disinvestment in five of Air India’s subsidiaries — its MRO unit Air India Engineering Services (AIESL), ground handling arm Air India Transport Services, Air India Charters which operates Air India Express and Airline Allied Services which operates Alliance Air and Hotel Corporation of India (which owns Centaur Hotels), along with a joint venture AISATS.

How did it come about?

Civil Aviation Secretary R.N. Choubey said at a press conference on June 29 that government think-tank NITI Aayog’s recommendation on strategic disinvestment of Central public sector units, including Air India, was the immediate trigger for its stake sale. In its report earlier this year, the NITI Aayog recommended an outright sale of Air India. The proposal was then sent for consideration of a core group of secretaries on disinvestment, chaired by the Cabinet Secretary. The recommendations given by the Cabinet Secretary-led group were forwarded to the Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, which gave its ‘in-principle’ nod for the national carrier’s strategic sale. Air India’s privatisation was first proposed in 2000 when the previous National Democratic Alliance (NDA) government decided to sell 51% of equity of the erstwhile domestic airline Indian Airlines, with 26% stake to a strategic partner. It also decided to allow disinvestment of 60% of Air India, which was running international operations, with 26% foreign entity stake. The move was dropped after opposition from the then Civil Aviation Minister Sharad Yadav.

Why does it matter?

The government’s efforts to turn around the finances of Air India seem to have failed with the national carrier’s eroding market share, continuous losses and a mountain of debts. Air India has not registered profit since over a decade after the merger of the erstwhile Indian Airlines (domestic operations) with Air India (international operations) in 2007. However, the primary reason for Air India’s disinvestment was the government’s inability to cope with its debt of ?52,000 crore. Around ?22,000 crore of the total debt accounts for aircraft acquisition loan and the rest is related to debt for meeting its daily and operational expenses. Air India Chairman and Managing Director Ashwani Lohani recently said the “mountain of debt” which the present management “acquired appears insurmountable and is at the root of all the problems.”
15/07/17 Somesh Jha/The Hindu