Who will buy Air India?

Government more inclined towards aviation friendly investors

Aviation

July 28, 2017

/ By / Kolkata



Rate this post
Challenges that might upset investment plans of private players

What are the challenges that might upset investment plans of private players

Amidst speculation to find the right strategic investor for Air India, the flagship carrier of India, the government is set to consider bids from investors who have a suitable understanding of the aviation business.

While there was a primary prophesy of TATA Group reclaiming the airline once founded by JRD Tata in the 1930’s, Indigo as a carrier was also expressed their interest in the international operations of the airline.

The monumental loan that looms large on Air India remains the most significant challenge for an investor to digest before they plan to acquire stakes in the airline. On the other hand, the Government of India has announced that they are interested in selling all of Air India’s operations to one single investor and not carve out international or domestic operations separately.

In a podcast for the media, Rahul Bhatia, one of the founders of Indigo, earlier this month said, “Understandably, an acquisition of Air India’s international operations would require significant restructuring and management oversight, a task that we are quite comfortable taking on. However, we simply do not have the ability or for that matter, the desire to take on debts or liabilities that could not be supported by a standalone restructured international operation of Air India.”

When the government think tank NITI Aayog recommended a disinvestment in May, the idea was to see if there were possibilities to find one or more than one private players who would be interested in taking up the responsibility of the ailing airline. Even in a recent interview with a financial daily, Amitabh Kant, the CEO of NITI Aayog said, “The airline can’t go on like this. We calculated that Air India would need an investment of about INR 300 billion. After very detailed examination, it was felt that given a choice between the government’s investment in infrastructure vis-à-vis social sectors and given that Air India has just 14 pc market share, it’s best that the private sector runs and manages Air India in a far more efficient and cost-effective manner. ”

While experts like Minhaz Merchant feels that the major fallacy was carried by the erstwhile UPA government in 2007 that practically ruined Air India. The then Civil aviation minister Praful Patel decided to merge Air India with Indian Airlines and gave away the most profitable domestic and international routes to Emirates, Etihad, Jet and other airlines. From being India’s national carrier, accounting for a third of the total passenger traffic, Air India today has just under 14 pc of the market share.

Although the recent speculation goes with an air of doubt on the calculation stakes, experts believe that anyone buying Air India – whether an airline or a private investor interested in airline will have primarily three things to consider and assess.

The first is definitely the INR 520 billion debt which might also see a discount or government-aid assisting the buyer. Secondly, the 49 pc stake might not be satisfying enough for a private buyer looking for a majority stake and lastly, there might be a possible outrage in the Air India unions which have already threatened to stop functioning fearing staff layoffs under the regime of a new owner.

Similar Articles

YOU MAY ALSO LIKE

0 COMMENTS

    Leave a Reply

    Your email address will not be published. Required fields are marked *