The government may take up fresh valuation of Air India before the national carrier is put on the block again. Rising jet fuel prices as well as the aircraft leasing models have added to the airline’s debt woes.
The government may have to wait for oil prices to stabilise before it does fresh valuation of the assets, a source in the know told BusinessLine.
The largest supplier of jet fuel to Air India is the public sector Indian Oil Corporation. The two have gone through their own commercial differences on clearance of fuel dues. Though other mechanisms can be tweaked or worked around, one thing which is beyond government control is the price of jet fuel (or Aviation Turbine Fuel).
During 2012-13 to 2016-17, ATF share in total expenses ranged between 48.39 per cent and 34.71 per cent. It did come down in 2016-17, but things have since reversed and fuel expenses are going up. ATF prices vary from State to State. Prices of jet fuel in Delhi have risen by almost 20 per cent during 2017-18 and by around 14 per cent during the first quarter (April-June) of the current fiscal.
Also, as part of plans to lower the debt and renegotiate lease rentals to make the Air India balance-sheet stronger, the government intends to move ahead with selling the subsidiaries. “At least two of its five subsidiaries could be sold this fiscal,” the official said adding that it is yet to be decided which two will be hived off and sold first.
Air India has five subsidiaries — Hotel Corporation of India Ltd, Air India Express Ltd, Air-India Air Transport Services Ltd, Air-India Engineering Services Ltd and Airlines Allied Services Ltd. The process to dispose subsidiaries before divesting Air India is a follow-up of the June 18 meeting chaired by Union Finance Minister Arun Jaitley and attended by Interim Finance Minister Piyush Goyal, Civil Aviation Minister Suresh Prabhu and Transport Minister Nitin Gadkari. The meeting reviewed the process after the government failed to get even a single bid for the debt-ridden airline.
The official said steps are being taken to sell various immovable property belonging to the national carrier across the country. All these will help in bringing in more cash to the balance-sheet, which in turn will increase the value of the airline.
Failed strategy
The Centre, through a Preliminary Information Memorandum dated March 28, had invited Expressions of Interest from prospective bidders. Although IndiGo and the Tata Group did show some interest initially, by the end of May 31 deadline, not a single bid was submitted, compelling the government to rethink its strategy.
According to the Air India Web site, the national carrier has total of 118 aircrafts, out of which 24 are on ‘sale and lease back’ model and 23 on ‘dry lease’ models. ‘Sale and lease back’ model prescribes first buying an aircraft, then selling it and then getting it on lease. This helps the airline earn a premium and need not be shown as depreciation in the book. Dry lease refers to aircraft brought on rent.
Finances of Air India show that lease rental is continuously going up. It was around ₹5,300 crore in 2012-13 and rose to over ₹18,000 crore in 2016-17 and is expected to rise further.
There is also a plan to renegotiate with the lessors to bring down the rent which is already affecting the overall debt. Air India has a debt over ₹50,000 crore.