Wednesday, December 06, 2017

Air India divestment: No better time than now for the Maharaja

Finally, there is some good news coming Air India’s way. After a series of losses and the government’s growing reluctance to plough in fresh equity, it was decided to sell off the airline. The problem, however, was the high level of debt, which stood at nearly Rs 52,000 crore.

The issue of high debt level has been handled by the government by keeping the working capital debt that stands at around Rs 33,000 crore out of the company which will be up for divestment. The remaining Rs 19,000 crore of debt are those taken to finance the purchase of aircraft and will continue to reside in the company, to be transferred to the successful bidder.

While the government has done its bit to sweeten the divestment of Air-India, the question raised by many was: is this enough to make someone bid? Till date, InterGlobe Aviation, which runs the Indigo airline, has shown interest in bidding for Air-India.

What seems to be working for the government in Air India’s divestment is the changing environment for the sector. For the month of October, India’s domestic air traffic grew at twice the rate of China’s. This is the 38th straight month, as per International Air Transport Association (IATA), which has seen double-digit growth. Year-on-year growth touched 20.4 percent in domestic traffic, the highest in the last 10 months.
For the month of October, domestic air traffic in China grew by 10 percent, Brazil 7.7 percent, Russia 6.1 percent, the United States 5.3 percent, Australia 2.8 percent and Japan 2.3 percent.

As a result of the continual growth, foreign airlines have now started taking India seriously. Recently Air France-KLM signed an ‘Enhanced Cooperation Agreement’ for the development of their operations between Europe and India. This alliance is over and above the arrangement that Jet Airways has with Etihad Airways, which is also an equity partner in the company.
06/12/17 Shishir Asthana/Moneycontrol