What 100% privatization of Air India may mean

NEW DELHI: Nearly a fortnight after the deadline for submitting bids for debt-laden Air India eclipsed fruitless , the government seems open to letting go the 24 percent stake it had wished to hold in the airline previously.
Economic affairs secretary Subhash Chandra Garg in an interview on June 12 said, “There’s no fixed objective that government should have 24 percent. It can be re-examined.” Garg’s statement comes amid speculations that government will soon revive the sale of its money-losing flag carrier with new guidelines.
Here’s what a fully privatized Maharaja’s throne may mean:
Having the government even as a minority (24 per cent) shareholder, keeps a door open for interference and thus is believed to be one of the primary reasons that put off potential suitors from the offer. Transaction advisor EY (previously Ernst & Young) received more than 160 queries regarding the sale from Indian and foreign airlines, indicating that significant interest for acquiring Air India does exist. Private players are expected to breathe more easy for not having to negotiate with the government in board meetings, if Air India is indeed sold in entirety.
The state-owned carrier has run into debt + to the tune of Rs 50,000 crore. Add to that an almost equal amount of losses that it has accumulated which makes Air India the proverbial albatross around the neck for the state exchequer. At Rs 33,392 crore, the government asked bidders to take over about 65 per cent of the airline’s debt in the guideline for sale, which was valid till May 31.
In his budget speech, the Finance Minister Arun Jaitley ( Piyush Goyal is currently in charge of finance ministry till Jaitley recuperates from a kidney transplant), set the divestment target for the financial year 2018-19 at Rs 80,000 crore.
The sale of Air India was supposed to be a major contributor towards achieving this goal. While the government had not set any minimum price, banking sources told news agency Reuters that the government hoped to fetch an amount between Rs 8,000 to Rs 10,000 crore from the sale.
With general elections less than a year away, the Air India deal, if and when it comes through, will also provide the Narendra Modi government some much needed elbow room as far as fiscal consolidation is concerned.
The Indian airspace is a fiercely competitive market. With an operating fleet of 138 aircrafts, an extensive network connecting around 54 domestic and 94 international destinations, Air India is an impressive bouquet to own. Acquiring a significant chunk of the air traffic and passenger share will provide an impetus to the carrier which seals the deal.
The fate of the fat loans that banks have given to Air India remains unclear. In a situation where the majority of the revenues earned by the airline goes in paying the interest of these loans, it is unlikely that a new owner would be keen on carrying the burden of legacy. This leads to a possible situation where banks might have to take a haircut at a time when they are already saddled by growing bad loans.

- Advertisement -