Divestment in air : India, Pakistan clear flagships for sell-off

The Maharaja has company as it will not be the only airline that is being privatised this year.

The ownership of two other state-owned airlines — Pakistan and Vietnam — is also expected to change hands, if everything goes as planned.

Pakistan International Airlines (PIA), whose fate more or less mirrors Air India’s, and Vietnam Airlines are to be sold in 2018. Of course, the Italian carrier Alitalia has been unsuccessful in finding a suitor for a few years now and, hence, is also technically available for sale.

There is a lot in common between Air India and PIA. Both came into being before India achieved independence from the British and before Pakistan was formed. Founded in October 1946 as Orient Airways, the airline was nationalised in 1955 and renamed Pakistan International Airlines.

Both PIA and AI are state-owned and the governments of the two countries want to sell them by June.

The divestment process, however, is different. The Fiscal Policy Statement 2017-18 in Pakistan that the Finance Ministry tabled in the lower house of Pakistan’s Parliament said that the restructuring plan (of PIA) will be followed by divestment of 26 per cent government of Pakistan equity stake to a strategic partner.

In comparison the Indian government is looking at divesting 51 per cent or more in Air India which has a fleet of over 100 aircraft.

In another point of departure, while the Indian government does not mind passing on AI’s management control to the new buyer, media reports in Pakistan suggest that substantial control of PIA or any subsidiary companies shall continue to vest in the majority shareholder — the Federal government whose share shall not be less than 51 per cent.

There are differences in the level of losses between the two as well.

Air India’s liabilities are over ₹50,000 crore and in Pakistan the country’s Federal Minister for Privatisation Daniyal Aziz announced that with its liabilities at ₹32,500 crore or ₹325 billion, the government had decided to complete by April the process of separating non-core assets from PIA’s air transport business for its ultimate divestment by June.

PIA operates scheduled services to 29 international destinations in 25 countries across Asia, Europe and North America.

Vietnam plans

The Vietnam government first divested its stake in Vietnam Airlines in 2016 with ANA Holding Inc picking up an 8.77 per cent stake in the carrier.

It is expected that the government will further dilute its stake in the airline in 2018 with the ultimate aim being that the government control in the airline come to 51 per cent from over 86 per cent currently.

Set up in 1956, Vietnam Airlines is a part of SkyTeam, the second largest global airline alliance. It operates one of the most modern fleets in the region with the average age of aircraft at 5.4 years.

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