Air India sell-off still stuck at the runway

AK Sachdev | Updated on May 17, 2021

Air India Divestment blues   -  P TI

It took 10 years for the government to finally realise that a firesale of Air India was the only option left

Covid-19 has been instrumental in shutting down many a small, medium and large business for the simple reason that it had turned unprofitable to an extent that the losses became unsustainable.

Juxtapose this with the fact that Air India, the Indian flagship airline has been making losses since 2007 (when Air India and Indian Airlines merged); the current losses are more than ₹20 crore per day. This private shame of our national airline does not draw public attention commensurate with its enormity as the burden to the taxpayer is muffled in convoluted processes that do not have a direct bearing on his pocket.

The fundamental question here is: would Air India incur losses of ₹20 crore a day and yet continue to run if it were a privately owned entity?

Obviously, the answer is that it would have shut down a long time back. So why does it keep running? The first reason is that the government is willing to take the losses, buttressing Air India’s tottering finances with ill-deserved largesse — seemingly a reward for its inherent inefficiencies.

Each new management incumbent blames the previous years’ mismanagement for what he has inherited. It took 10 years (of merged operations) for the government to finally decide that its last resort was disinvestment, a euphemism for a rummage sale. Since 2017, the government has been trying to invent package deals that would lure potential investors, without much luck.

Despite its 4,400 domestic slots, 1,800 international landing and parking slots at domestic airports, and 900 at foreign destinations, and a membership of Star Alliance (since 2014), its accumulated debts render it an unattractive acquisition, its fairly well-known brand value notwithstanding.

The accumulated debts of the airline are muffled by obfuscation; reportedly, at the time an Expression of Interest document was issued in February 2020, the total debt was around ₹80,000 crore. The net loss in 2020-21 was expected to be over ₹10,000 crore.

Luring investors

So, the current total should add up to around ₹90,000 crore. However, in the government’s attempt to make the disinvestment more attractive, ₹29,474 crore has been transferred to Air India Assets Holding Limited (AIAHL), an asset holding company (ironically deployed to hold liabilities!).

Thus, the total debt being peddled now by the Minister of Civil Aviation (MoCA) is ₹60,000 crore. How much of this will be part of the bitter medicine that a new investor would have to ingest so as to be able to savour the tastier morsels, remains to be seen. There is also the question of the Minister having promised all Air India unions that all salary and allowance dues would be paid out before the disinvestment process was concluded.

Due diligence, involving physical inspection of capital-intensive assets, is expected to be delayed by the pandemic into next year. However, all indications are that this may be the final lap of the disinvestment process.

Tata Sons Private Limited (the holding company of Tata Group) and Ajay Singh (SpiceJet promoter) are the two final contenders; reportedly, Tata’s bid is more persuasive.

It is now seven decades since JRD Tata was ousted from Tata Air Services, the forerunner of Air India, by the government which thought it could manage the airline better. It would be poetic justice to see Tata reclaim the airline’s management; neither the tax payer nor the government should harbour any doubt that Tata will manage the airline much better than hitherto.

The writer is a former COO of an airline

Published on May 16, 2021

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