Debt biggest challenge for Air India's disinvestment

The Group of Ministers headed by Finance Minster Arun Jaitley will take a call on key issues that will make debt-laden Air India’s stake sale to private players more attractive.

The Ministerial group will consider hiving off Air India’s assets and a portion of its non-aircraft debt to a special purpose vehicle (SPV) as a first step toward clearing up its balance sheet.

“The Civil Aviation Ministry had proposed forming a SPV housing a substantial portion of its working capital loan and assets,” a senior ministry official said, on the condition of anonymity. “The sale of Air India’s prime real estate assets will help in meeting its liabilities,” the source said.

Air India has a total debt of around ₹52,000 crore which comprises of ₹22,000 crore as aircraft loan and the rest as working capital loan and other liabilities.

Some of its prime real estate properties include a building at Nariman Point and another at the old airport in Santa Cruz in Mumbai, freehold land in Chennai’s Anna Salai, an office in Baba Kharak Singh Marg in Connaught Place in New Delhi and freehold land and buildings in Hyderabad. However, the airline has mortgaged some of these as security with banks for availing loans.

The Government may also separately go for strategic disinvestment of Air India’s three profit-making subsidiaries: its MRO unit Air India Engineering Services Limited, ground handling arm Air India Transport Services Limited and Air India Charters Limited.

“The proceeds from disinvestment of Air India’s subsidiaries may further help in clearing Air India’s debt,” a senior Air India official said which operates Air India Express.

Its other subsidiaries include: Airline Allied Services Ltd which operates Alliance Air and Hotel Corporation of India (which owns Centaur Hotels) along with a joint venture AISATS.

Air India has made unsuccessful attempts in the past to clear its over Rs 50,000 crore debt, including asking banks to convert a part of loans into equity share and asking Reserve Bank of India to provide concessions for debt restructuring.

An official statement by Civil Aviation Ministry said on Wednesday that the Ministerial group will frame its recommendations on “treatment of unsustainable debt of Air India”, “hiving off certain assets to a shell company,” among others.

Various Ministries are still divided over the quantum of stake sale in Air India and the Ministerial Group will now take a final call on the matter. While government think-tank NITI Aayog and Finance Ministry favour a complete privatisation, Civil Aviation Ministry aviation ministry is keen that the government continues to remain a stakeholder in the national carrier after handing over its management to the private sector.

History:

1932: Founded by J.R.D. Tata as Tata Airlines – country’s first scheduled airline

1946: Tata Airlines became a public limited company under the name of Air India

1948: Government of India acquires 49% stake in the company; starts international operation under brand of Air India International

1953: Air Corporation Act enacted to nationalise all existing airline assets and Indian Airline Corporation (domestic operations) and Air India International were established

1962: Air India International named as Air India

1994: Air Corporation Act repealed to allow private airlines to operate on domestic routes; Air India, Indian Airlines converted into Limited Companies under Companies Act, 1956

2000: Previous NDA govt drops privatisation plan after deciding to sell 51% of equity of Indian Airlines and 60% of Air India

2007: Erstwhile Air India and Indian Airline were merged into single entity named as National Aviation Company of India Limited (NACIL)

2010: NACIL renamed as Air India Limited

2012: UPA govt rule out AI privatisation; Turnaround plan to infuse over Rs 30,000 crore till 2021 approved

2017: NDA govt approves in-principle approval of Air India's disinvestment

Some facts on Air India

118 aircraft out of which 77 planes owned, 22 on sale and lease back and 19 on dry lease

Fleet includes a mix of Boeing B777, B747, B878 and Airbus A319, A320, A321 and ATR42, ATR72360 flights daily

More than 18 million annual passengers

Market Share of Air India

2013 19.4%

2014 18.4%

2015 16.4%

2016 14.6%

2017 13.3% (till May)