Friday, June 08, 2018

Air India stake sale: Why the failed first attempt at the carrier's disinvestment could cost the Narendra Modi govt dear

The Modi government’s failed first attempt at selling a majority of of Air India has not just called into question its seriousness in implementing one of the boldest reforms at the fag end of its tenure, it has also, once again, highlighted the airline’s worsening financial situation. And now, when no one is clear whether the disinvestment will happen at all, and in what form, it is only proper that bread-and-butter issues at Air India get addressed on priority.

Air India had been surviving on tax payers’ money before the disinvestment plans went awry and continues to need large amounts of cash to function. Its latest requirement -- Rs 1,000 crore as an urgent short term loan to meet day-to-day expenses -- should therefore come as no surprise.

Not just a fresh loan, the airline may also soon see a churn at the top. People close to developments have said that the Chairman and MD Pradeep Singh Kharola might be looking to exit. These people said he believes his brief was to steer the airline through the disinvestment process but since there is no clarity now on what happens on that front, he would like to move on.

The people close to developments also said today that the airline’s working capital loans are already at about Rs 33,000 crore and the fresh loan is urgently needed to pay fixed charges and salaries, among other things. They said the May salary has been delayed and would be paid by the fifteenth of this month “provided the fresh loan came through”.

These people also referred to the equity infusion obligation of the government under an earlier approved 'Turnaround Plan', where the total equity promised is Rs 32,000 crore till 2021 and only Rs 24,700 crore has been pumped in to AI till date. They said if disinvestment is not happening, the government will have no option but to continue with an equity infusion as planned, besides offering a sovereign guarantee to future working capital loans. Remember, AI anyway gets enough leeway from creditors on a routine basis – it continues to owe upwards of Rs 2,000 crore in airport dues to the state-owned Airports Authority of India (AAI) alone.
08/06/18 Sindhu Bhattacharya/First Post