Is it the final call for the Maharaja?

Is the Maharaja all set to take a final bow after a 64-year-long journey as the state-owned airline? It looks like the airline has reached the end of its runway and there is no scope of either turning around or a successful take-off.

Not a day passes without a commentary on Air-India’s finances and how it will test the Modi government’s will to bite the bullet.

Air India’s debt is around ₹50,000 crore and with the government unwilling to support it any more, the airline has had to borrow money even to pay its salaries.

But, say sources in the know, the situation is not as bad as it is being made out. The government will not have to write off ₹50,000 crore as selling Air India subsidiaries and disposing of the land it owns — all prime properties in different cities — will fetch it handsome money. After this, the write-off would only be in the range of ₹5,000-₹8,000 crore.

The CBI investigation into all the deals that Air India was involved in during the 10-year UPA government has further muddied the waters. The probe will include buying aircraft and the ill-fated merger of Indian Airlines and Air India, which operated international flights, that supposedly aggravated the financial mess.

A combination of factors has led to this stage. One major factor is that over the last few years the the government has not provided the money that the airline needs; and it has had to borrow money to pay employee salaries.

FIRs have been registered against officials for taking decisions alleging malafide intentions and they have been pending for years.

A combination of these factors has made the government finally look at other options for running Air India. On Wednesday BJP MP Subramanian Swamy wrote to the Director, Central Bureau of Investigation, seeking an investigation into the purchase of 111 aircraft by Air India.

At the moment ‘privatisation’ is being considered as the best option, with government officials silent on whether Foreign Direct Investment will be allowed into the state-owned airline.

Incidentally, the government had earlier said that the FDI policy which allows a foreign airline to pick up a 49 per cent stake in a domestic airline, does not apply to Air India.

The trigger for the latest thinking in the government came after its think-tank the NITI Aayog examined Air India’s finances. The NITI Aayog’s findings have not been made public, but in what is probably one of the worst kept secrets in the domestic aviation industry, without state support Air India would have shut shop some time ago.

Given this situation there seem to be very few options left for the government to save Air India.

For the privatisation process to take off, the Ministry of Civil Aviation has to move a note for the Union Cabinet seeking its approval for whatever it thinks is the best course of action for Air India. Sources in the Ministry said that a road map should be ready in the next three months.

Those in favour of divesting argue that the amount of funds which the government will have to “look at” is much less than the ₹50,000-crore debt . They point out that out of the debt almost ₹20,000 crore is represented by assets like aircraft in the balance sheet so whoever buys Air India should recover their investments.

As the aircraft have done 8-9 years and have almost a decade more to go they have potential value; buying aircraft will cost a lot more.

Further, the airline also has a brand value and more significantly it also has slots around the world including in Frankfurt, John F Kennedy (New York), Heathrow (London) and Narita (Japan) all of which are difficult to get now and are worth millions of dollars.

The government can further reduce the debt by selling the airline’s subsidiaries and its huge land bank. It is estimated that Air India Charters has a market capitalisation of ₹8,000 crore and Air India Transport has a valuation of about ₹2,000 crore as it has a 55 per cent market share.

Then there is the land bank — which at the time of Air India and Indian Airline’s merger in 2007 was estimated at ₹8,000.

Further, it is estimated that a slump sale of the various subsidiaries and land bank can fetch the government close to ₹15,000-₹17,000 crore, which means that the amount which the government will have to look at is in the region of ₹5,000-₹8,000 crore.

This is seen as a much better option than pumping in ₹50,000 crore into the airline.

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