Disinvestment of Air India

ARCHIVES

Search 29^th June 2017 http://www.newsonair.com/Main_Audio_Bulletins_Search.aspx

TOPIC:

General Studies 2

• Infrastructure:

General Studies 3

• Infrastructure: Airports

In news: Air India, the national carrier, is once again up for disinvestment. Air India has a total debt of around ?52,000 crore which comprises of ?22,000 crore as aircraft loan and the rest as working capital loan and other liabilities. It is not yet clear how much the government wants to offload- whether it will fully exit Air India or it will retain a minority stake is yet to be decided.

Air India came into existence in 1932 as starter airline. It was nationalised in 1953.

Why it makes sense?

For many years the government had been considering the option that whether Air India should be helped in coming out of its current situation or disinvested. This is not first instance. In 2000 also it was tried for disinvestment but it was not materialised due to lack of political will. At that time, the Tatas, the actual promoters of airlines, wanted to buy it back along with Singapore Airlines.

Now this time, Air India cannot make a turnaround without disinvestment.

Air India is operational today because previous government had given a bailout package of Rs. 25000 crore.

Today the situation is once again that currently it is in debt of 50000 crore. So out of the choice to run the company, to allow to change its working and to disinvest, the last option is the most rational one.

It has been not able to change or improve its situation in financial health in last few years so the debt and losses are growing. If this time there is no disinvestment of Air India, it will be difficult even to disinvest the company in future. So it’s a right step in right direction.

Enough political will for disinvestment now? The ministry of civil aviation is not completely in favour of this decision. The ministry believes that if the government is going to write off debt, then why not let the airline run. But now the time for that is gone.

What is process of disinvestment?

A committee of Group of Ministers, headed by finance minister will prepare a roadmap according to which the disinvestment process will go.

NITI Ayog has also proposed that Air India should be completely given in private hands.

But before that, following steps should be undertaken

1. Identify the assets of 5 subsidiaries of Air India, out of which, 3 are profit making. So these can be divested with a favourable price.
2. Identify Rs. 25000-30000 crore worth of physical assets of Air India and get the maximum possible from them.
3. Identify good buyers

Once the best of all is done, then there will a situation where there will be best price for Air India. That would be the time to decide the best company to take over Air India in terms of giving best price. Air India express, Air India transport services and Allianz air are profit making. By selling them, the government can realise Rs. 20000 crore rupees.

Air India is sitting on huge land parcel. This can be divested which can also generate sizeable amount of money. Thus, the government should focus on this and not on how much to keep it with itself.

Why government should get best price?

Air India has 140 aircrafts, operates in 41 international destination, goes to 72 domestic destination, has 14% share in domestic market and 17% share in international market running from India. Thus, it will get best price for such a huge airline.

This is true that every airline would like to take over a company in healthy state of affairs which is not the case with Air India. So it is necessary to bring it to best possible state and then divest it.

Way forward

Some may say it is distress sale as the airlines is sold after stripping off all assets. However, it shouldn’t matter what kind of sale it is at this juncture. The final goal should be proper disinvestment of Air India which should take place by 2018. GOM has to decide whether it is distress sale, of debt write off or asset realisation.

Some sections of the government feel that foreign investors shouldn’t be allowed as it is national airline, pride of country and foreigners shouldn’t be running it after privatisation. This is despite the fact that government of India has now opened up Indian airlines to foreign airlines after keeping them away for 25 years. Since then, 49% equity a foreign carrier was allowed to take in Indian carrier. In 2016, the rules were amended with 100% overtake by the foreign carrier in participation with foreign funds and foreign investors.

Hence, the government wouldn’t be restricting the foreign players to bid in the process. India is a destination where record FDI is coming. There were apprehensions a few years back about foreign companies coming into Indian businesses but right now there is no reason why they shouldn’t be allowed to participate in this disinvestment process. Many foreign companies are working in critical sectors such as telecom. So, it is possible in Air India also. It comes without any doubt that national interest in terms of security will be taken care of during the process of disinvestment.

In brief, the journey

• 1932: Founded by J.R.D. Tata as Tata Airlines – country’s first scheduled airline
• 1946: Tata Airlines became a public limited company under the name of Air India
• 1948: Government of India acquires 49% stake in the company; starts international operation under brand of Air India International
• 1953: Air Corporation Act enacted to nationalise all existing airline assets and Indian Airline Corporation (domestic operations) and Air India International were established
• 1962: Air India International named as Air India
• 1994: Air Corporation Act repealed to allow private airlines to operate on domestic routes; Air India, Indian Airlines converted into Limited Companies under Companies Act, 1956
• 2000: Previous NDA govt drops privatisation plan after deciding to sell 51% of equity of Indian Airlines and 60% of Air India
• 2007: Erstwhile Air India and Indian Airline were merged into single entity named as National Aviation Company of India Limited (NACIL)
• 2010: NACIL renamed as Air India Limited
• 2012: UPA govt rule out AI privatisation; Turnaround plan to infuse over Rs 30,000 crore till 2021 approved
• 2017: NDA govt approves in-principle approval of Air India’s disinvestment

Connecting the dots:

• The disinvestment process is a proof of government realising its true role in democracy. What is this role and how does it affect the democratic functioning? Critically analyse.