Tuesday, October 29, 2019

Air India's new privatisation challenge — competition from global counterparts looking to sell stake

After a failed attempt before the May elections, the government seems determined to press ahead with the disinvestment of Air India. Trade unions, analysts, consultants and political watchers have all taken sides in the ‘should the government sell Air India’ or ‘should it retain Air India’ debate. But the real question is can the government sell the airline?

Air India has run into a debt of Rs 50,000 crore by some estimates and the special purpose vehicle (SPV) named Air India Assets Holding Limited (AIAHL) has mopped up Rs 21,985 crore by way of bond issues since September 16 with the proceeds being utilised to repay the debt of the national carrier.

There is confusion about how the entity will be sold. Air India comprises the flagship airline, low-cost subsidiary Air India Express — which is headquartered in Thiruvananthapuram, a regional carrier named Alliance Air that operates only ATR turboprop aircraft. Together, there are 120 aircraft. The other arms are ground handling, engineering and hotel along with stakes in the catering unit!

Will an airline be interested in all this? Probably not. Will it be interested in parts? Most certainly yes.

The billion-dollar question has been who would want to buy Air India and the baggage along with it? A few like IndiGo have publicly stated that they are interested in the international operations if sold separately. While IndiGo is in contention because it is an airline operating out of India, the latest of deals in the airline space have been across boundaries with Delta acquiring stake in LATAM. Delta also owns a stake in AeroMexico and Virgin Atlantic.
The cross-holding of stakes in airlines or across the world is not uncommon. IAG (International Airlines Group), which owns British Airways and Iberia, sees Qatar Airways hold over 21 percent stake. With the industry as dynamic as aviation, Air India should look for suitors from all across the world. But Air India is not the only bride and in-fact, all other brides have the same characteristics as Air India.
Like Air India, many other government-owned carriers are in the market for privatisation and they are around for a very long time without success. Three to five government-owned carriers may be up for privatisation between now and 2021.

The competition starts closer home from Malaysia Airlines being the likely candidate for privatisation. The loss-making carrier, which has suffered two back-to-back tragedies (the doomed MH370 and MH17 flights), has been on a lookout for a potential investor as the leadership in the country has publicly admitted to looking for ways to turn the ailing carrier to profits.

The Indonesian government has been looking for a strategic partner to divest in national carrier Garuda Indonesia. Over the years, since the airline first mooted privatisation till date, the airline has started a low-cost subsidiary Citilink and has a stake in other ailing carriers in the country Nam Air and Sriwijaya Air, along with information technology company and an MRO (Maintenance, Repair and Overhaul).
29/10/19 Ameya Joshi/CNBC TV18
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