Govt tells Air India: Be privatised or perish

Renewed attempts to sell the debt-laden flag carrier

Business

November 28, 2019

/ By / New Delhi

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If the renewed attempt to sell the debt-laden national carrier Air India fails it will have to shut down

Privatise or else perish, is the new mantra from the Modi government in its renewed attempt to sell the debt-laden national airline – Air India.

If the renewed attempt to sell the debt-laden national carrier Air India fails it will have to shut down. The strong worded message was delivered by India’s aviation minister Hardeep Singh Puri. “The airline will have to close down if it’s not privatised,” Puri told the Indian parliament on November 27. “Once we invite bids, then we’ll see how many bids will come in.”

The decision to disinvest Air India was taken at the ministerial panel, headed by home minister Amit Shah, that met for the first time on September 19, to explore all options. The panel also includes finance minister Nirmala Sitharaman, civil aviation minister Hardeep Puri, and railway and commerce and industry minister Piyush Goyal.

Sale crucial

The successful sale of Air India is crucial for the Modi government. It will help bridge a widening fiscal deficit exacerbated by dismal tax collections and a USD 20 billion corporate tax cut. Secondly, Air India, which started as Tata Airlines in 1932 and later became state-owned, hasn’t made money since its 2007 merger with state-owned domestic operator Indian Airlines Ltd. Further, the international carrier is saddled with a whopping USD 11 billion in debt.

Not the first attempt

This is not the first time that the Indian government has tried to disinvest the national carrier. Last year the Modi government offered to sell 76 pc of Air India while retaining 24 pc which had reduced the bid value. However it failed to generate any interest among domestic or global aviation players. The previous Atal Bihari Vajpayee-led NDA regime during 1998–2004, had seriously attempted company-level privatisation, ‘strategic disinvestment’, including the sale of two airlines—Indian Airlines and Air India. Due to lack of credible offers, the proposal fell through. Compared to previous two offers, this time the offer seems to be lucrative as the government has decided to disinvest its entire 100 pc stake.

Puri acknowledged that the government’s failure to find bidders for the national carrier in its previous attempts at divestment was partially due to its decision to retain a 24 pc stake in the airline. Air India has been functioning on a rescue package approved as a part of its Turn Around Plan (TAP) in 2012 and the government has infused over INR 290 billion into the airline since. The stake sale which will also involve selling about 128 planes, will help the government exit a loss-making business.

Now it is to be seen how the second attempt by the Modi government to privatise works out as preparation of a Preliminary Information Memorandum for inviting Expression of Interest (EoI) for 100 pc divestment of government stake is underway. While Puri strongly believes that the revised terms of the disinvestment makes the offer lucrative, however, it is to be seen as to who has the deep pockets to take the offer.

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