The central government may not sell Air India’s domestic and international operations separately, senior government officials have said. “We are not willing to go back to the days of Air India and [erstwhile] Indian Airlines as the disinvestment process of the national carrier may become unattractive,” a senior Aviation Ministry official, requesting anonymity, said.
This might come as a hurdle to low-cost airline IndiGo’s plan to buy a stake in AI as it was keen on acquiring its international operations.
“AI’s business cannot be split merely based on an expression of interest from a single private player. If we sell lucrative assets separately, it will make the divestment of the domestic unit and subsidiaries tricky,” the official added.
“If we sell lucrative assets of Air India separately, it will make the process of disinvestment of its domestic unit and subsidiaries tricky,” the official added.
The Central government’s concern is that Air India’s valuation may further take a hit if it hives off Air India into two companies and invites bids for its domestic and international operations.
Barely hours after the Union Cabinet gave its in-principle nod to divest stake in Air India last month, India’s largest low-cost carrier IndiGo expressed formal interest in its airline operations. However, the airline made it evident that it will be keen on buying Air India’s foreign operations and its low-cost international airline Air India Express.
“Acquiring all of the airline operations of Air India brings with it a lot of other issues and many more challenges and complexities. We would evaluate that option and assess if it is economically feasible for us to go down that path,” IndiGo’s co-founder Rahul Bhatia told analysts in a conference call on July 6. Mr. Bhatia also said it was eyeing its international operations “from day one.”
He had, however, added that if the government decided to sell Air India’s entire airline operations to a single entity “and not carve out the international operations, we would still be interested in exploring that option.”
IndiGo, which serves seven international destinations, is planning to start low-cost international operations and said acquiring Air India’s foreign operations will help the airline in getting “rapid entry into restricted and, in some cases, closed international markets.”
Air India has a wide range of international operations across the U.S., U.K., Europe, Russia, Australia, South-East Asia and Gulf countries. It flies to attractive destinations such as Sydney, Tokyo, Shanghai, Rome, Osaka, Paris, Newark, New York, Moscow, London, Frankfurt, Chicago, among others.
During the conference call, Mr. Bhatia had acknowledged the fact that the government may not be interested in carving out the international operations based on its formal expression of interest which was intended to give a road map to the policy-makers on Air India’s stake sale. “So, first we have to see what exactly the government would like to do,” he said.
Since its inception days, Air India’s operations were split into two companies – Air India for international routes and Indian Airlines for the domestic market. In 2007, the government merged the two airline operations into a single entity – National Aviation Company of India Limited (NACIL) which was later renamed as Air India Limited in 2010.
The merger of Air India’s operations drew flak as the airline had not been able to report net profit since 2006-07. Air India Chairman and Managing Director Ashwani Lohani recently blamed “the ill-fated decision of the merger of the two organisations” and “many other decisions of the earlier regime” as the prime reason for its “grim financial scenario.”
