Sunday, April 08, 2018

Air India disinvestment: How to make Maharaja rule the skies again

The government has finally decided to bite the bullet on Air India. It has put out Air India for sale along with two of its smaller units, Air India Express and Air India SATS — in the latter, it holds 50% stake with Singapore Airlines — and expression of interest has been sought. The decision is heartening but the terms of sale are daunting. The government is harbouring the delusion that the airline will get good money, forgetting that Air India is now a doddering maharaja.

In the proposed terms, the government wishes to offer 76% equity for sale and retain 24%, and pass on the burden of around Rs 34,000 crore debt to the successful bidder. The debt is unviable and frightening. The airline is presently losing more than Rs 5,000 crore a year. Even the most intrepid and enterprising bidder may shy away.

The government must do more to attract bidders, widen the competition and realise the best value.

Though Air India has lost its sheen, it is still a much-loved brand, evoking fond nostalgia, and has huge potential value, which can be unlocked by the right strategic investor. Look at the positives: a vast domestic and global network of key destinations, assured time slots and space in prized airports with air-side access, hangars and engineering backbone and infrastructure, trained engineers and flight crew, benefits of bilateral rights and assurance of continued protection of those rights as was done when airlines like British Airways, Lufthansa and Qantas were privatised. Air India also has huge aircraft orders in place, with delivery timelines, but the prices may have to be renegotiated or converted to sale-andleaseback, which is a knotty issue as a CBI inquiry is on to find out if the aircraft were purchased at higher than market prices. The airline also has a top line revenue of around Rs 25,000 crore, which can be doubled with better management in a short period as occupancies and revenue per seat and aircraft utilisation are very poor compared with well-run, profitable airlines. There is also an inexhaustible customer base — imagine 97% of Indians have never sat on a plane.
08/04/18 GR Gopinath/Economic Times