Air India stake sale: Will it be a smooth flight this time?

Ashwini Phadnis New Delhi | Updated on July 09, 2019

In the first week of its taking charge, the new government has shown it is serious about divesting its stake in the state-owned Air India.

On Monday, the government announced the setting up of a data room which will be up and running by July 1 and the appointment of two nodal officers from key departments to liaise with those dealing with the data room. The data room will provide a compilation of all data pertaining to Air India’s operational and financial aspects. This will form the basis for the valuation of the airline in its present form. Setting up the data room should be an easy first step as accounts for 2018-19 have to be incorporated. Accounts till 2017-18 were updated and stored during the divestment process under the previous Modi government.

With the data room becoming operational from July, the government will have enough time to go through the process without any pressure of hurrying through. This time it is hoped that the process will be completed within 3 to 12 months.

Among the various aspects that may work in favour of Air India’s divestment are the Special Purpose Vehicle which was created to park the Maharaja’s debt of over ₹29,000 crore. This means any potential investor in the airline will only have to pick up aircraft related and other sundry debt.

In addition, global oil prices are not very high and the rupee seems to have stabilised at about ₹69.25 to a dollar.

Then there are other advantages. Air India is the only Indian carrier operating non-stop services between India and San Francisco. Plans are afoot to start services to Bali and points in Africa. Air India will be the only international airline operating on these routes from and to India.

Another development that could work in Air India’s favour is the temporary shutting down of Jet Airways. This makes Air India the largest out-bound carrier from India. It also has the largest wide-body fleet among all Indian carriers and slots at almost all major airports globally from San Francisco to Tokyo and Sydney to London. Air India’s officials point out that almost 75 per cent of their capacity is deployed on international routes.

However, there are some concerns.

There is still no clarity on whether the government is ready to divest 100 per cent stake or retain 24 per cent stake, which it wanted to last time, as a result of which it got no buyers.

Others say that like every country has a national carrier, the government wants to see Air India as the national carrier which will lead to the branding of India globally. What remains to be seen is whether the government will take this thinking to its logical conclusion this time around. Ernst and Young were the advisors for the divestment of Air India last time.

Published on June 04, 2019

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