Heavily Debt-Ridden | Cabinet Allows Privatisation Of Air India

NEW DELHI: In one of its boldest reform moves, the Indian Government on Wednesday, June 28, approved the privatisation of debt-ridden Air India and its five subsidiaries.

After a Cabinet meeting, finance minister Arun Jaitley said “in-principle approval” for AI’s disinvestment had been secured and now a panel headed by him would decide modalities of the sale.

Jaitley told the media that Cabinet approval for disinvestment was accorded based on a proposal presented by the civil aviation ministry. The decision comes after the government came around to the view that the financially bleeding airline could serve connectivity goals in private hands. The airline has a debt of more than Rs 52,000 crore and is surviving on a Rs 30,000-crore bailout package by the UPA government in 2012. “How much will be disinvested, by which process, its assets and debt, as also its hotel companies, will be deliberated,” said the minister. A panel will decide whether to go for 100% stake sale in one go or divest gradually.

The department of investment and public asset management has given options of 100%, 74% and 51% stake sale in AI. The FM-headed “AI-specific alternative mechanism” will decide who can bid for the airline — whether foreign airlines in JV with Indian or foreign partners should be allowed to buy the Maharaja.

Current Indian rules allow Indian airlines to be owned fully by foreign entities but puts a cap of 49% on ownership by foreign carriers. The Tata Group, founder of AI is seen as a potential bidder for AI but it had, during the Vajpayee government, unsuccessfully bid along with Singapore Airlines.

The current BJP administration will now examine if such a model can be allowed for AI. The panel will also decide on the treatment of AI’s unsustainable debt, hiving off certain assets to another company, demerger and strategic disinvestment of three profit-making subsidiaries, said sources. The subsidiaries whose stake sale will be considered include four wholly-owned ones — AI Engineering Services Ltd, ground handling arm AI Transport Services Ltd, Alliance Air and the lowcost AI Express. The fifth subsidiary, Hotel Corporation of India, runs Centaur Hotels and is AI’s 50:50 JV with SATS Ltd of Singapore.

The panel will also decide how to make AI — with its debt of Rs 52,000 crore — attractive enough for bidders. The airline has a working capital loan of Rs 30,000 crore and Rs 22,000 crore of aircraft purchase loan on its books. The process of evaluating AI’s assets will start simultaneously. AI has over 110 planes in its fleet, including 43 widebody aircraft, and flies to 41 international and 72 domestic destinations.

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