What started as a massive exercise to privatize the loss-making state-run carrier Air India, ended up with the government stuck infusing more taxpayers’ money into the debt-ridden airline. Going ahead, sources say it is unlikely that the government will stop infusing capital. Air India has had some long-standing problems which has eaten into its profitability, including several loss-making routes and inadequate manpower.
Why disinvestment failed
Plans to divest 76 per cent of the government’s stake in Air India did attract the attention of multiple players. However, the terms under which the sale was being offered were considered far too stringent for any player to rescue the ‘Maharaja’ of the skies.
First, the government decision to hold back 24 per cent of the stake did not go well with private players since no one wanted the government on its back. Second, according to a senior civil aviation ministry official, compulsory buying of the debt associated with the airline’s aircraft was also an insurmountable sticking point, since the debt was so huge that it was nigh impossible for buyers to service it from the airline’s earnings.
Now, the government has put the disinvestment process on hold and is working on improving the operational efficiency of the airline. The senior official quoted above said that the government can do some things before going ahead with the stake sale process, like bringing down the debt to a level which can be serviced by a revenue stream.
At present, the carrier is estimated to have a debt burden of over Rs 55,000 crore and about Rs 29,000 crore may be transferred into the special purpose vehicle created to take on Air India’s debt. Even after this, AI is left with a debt of over Rs 25,000 crore -- more than three times the debt of the defaulting Jet Airways. It is worth noting that both airlines have similar market share and comparable revenue in the Indian aviation market.
Government money to flow in AI, which is surviving on the Rs 30,000 crore bailout package issued by UPA II in 2012, will continue to require funds to remain operational. In August 2018, the government had received Parliament’s nod for Rs 980 crore equity infusion under a turn-around plan. Earlier this month, Parliament approved a further Rs 2,345 crore equity infusion into the airline. It is likely that until and unless the government finds a buyer or decides to shut down the airline (an unlikely scenario), it will continue to receive government capital.
31/01/19 Arshad Khan/New Indian Express
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