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All you wanted to know about Air India divestment

Ashwini Phadnis | Updated on December 21, 2020

Nearly 12 months after it was first announced, the process of Air India’s divestment finally took off on December 14 when interested parties put in their Expressions of Interest (EoIs). This is the BJP government’s second attempt at selling its stake in the state-owned airline.

What is it?

Divesting Air India entails the government selling off its 100 per cent stake in the state-owned airline. The government, as part of the exercise, also plans to sell its entire stake in Air India Express and 50 per cent stake in Air India SATS Airport Services Private Ltd.

Once the divestment of AI is complete, it will bring to an end government ownership and control of the airline which has had a glorious past.

AI’s divestment has been widely supported as the airline’s large losses are funded out of the Central budget and have proved quite a burden on the exchequer. Its current year losses are expected to be about ₹8,000 crore. The government pumped in ₹15,520 core between 2014-15 and 2018-19 to keep it afloat. Tata Sons, and another consortium of some AI employees and Interups are the two confirmed parties who are interested in bidding for Air India.

Air India was started by JRD Tata before Independence. It gave established carriers on the India-UK route like KLM and British Airways a run for their money. Under JRD, AI became the first airline in Asia to fly jet aircraft in the early 1960s. Singapore Airlines is said to have sought assistance for its in-flight services from AI when it was starting out.

Despite nationalisation in 1953 and the creation of AI and Indian Airlines Corporation to fly on primarily domestic routes, JRD remained at the helm of AI till the Janata Party government removed him.

That marked the beginning of the decline of the Maharaja as there was greater government interference in its affairs and things started going southwards financially.

In 2007, the Manmohan Singh government decided to merge AI and Indian Airlines while retaining the brand name AI. The move was supposed to benefit the airline but the plan never really worked.

Why is it important?

It is hoped that with AI passing into the private sector, its operations and costs will get streamlined, services on board will improve and basic services like wi-fi will also be made available.

A strong international carrier in India will give a boost to the large airports built in Delhi, Hyderabad, Mumbai and Bengaluru which along with AI will be able to win back some of the tourist dollars from Indians travelling abroad who are currently travelling on foreign carriers.

A successful turnaround of Air India could also help the Indian economy as it is a well-established fact that aviation has a multiplier effect on the economy. It is estimated that each dollar of output produced in the air transport industry worldwide creates a demand of $3.25 output in other industries, and that each job in air transport creates 6.1 jobs in other industries.

Why should I care?

A successful completion of AI’s divestment will possibly give you the option of flying one more low-cost carrier domestically in the form of Air India Express (which is also being divested). Currently, AIEL has a very small footprint in India and is primarily focussed on connecting Kerala with West Asia.

On international routes, passengers can look forward to better service and amenities, and flying on a home-grown airline which has had a makeover. AI, for instance, is the only Indian carrier to fly on the India-San Francisco and India-Australia routes non-stop.

The bottomline

Even if you’re not zipping abroad frequently, you can cheer Air India’s divestment as a taxpayer.

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Published on December 21, 2020

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