The Hindu Explains: From Air India divestment to museum for Gopal Krishna Gokhale

What is the divestment of Air India all about?

In this April 29, 2011 file photo, passenger jets from Air India, India's national carrier, stand at Indira Gandhi International Airport in New Delhi.  

What is it?

The Union Cabinet on June 28 gave its ‘in-principle’ nod to divest stakes in Air India — a wholly owned government airline. The Cabinet decided to go for Air India’s strategic disinvestment, which means the government is willing to shed a substantial portion of its stake and hand over the management of the ailing airline to the private sector. The Cabinet also approved strategic disinvestment in five of Air India’s subsidiaries — its MRO unit Air India Engineering Services (AIESL), ground handling arm Air India Transport Services, Air India Charters which operates Air India Express and Airline Allied Services which operates Alliance Air and Hotel Corporation of India (which owns Centaur Hotels), along with a joint venture AISATS.

How did it come about?

Civil Aviation Secretary R.N. Choubey said at a press conference on June 29 that government think-tank NITI Aayog’s recommendation on strategic disinvestment of Central public sector units, including Air India, was the immediate trigger for its stake sale. In its report earlier this year, the NITI Aayog recommended an outright sale of Air India. The proposal was then sent for consideration of a core group of secretaries on disinvestment, chaired by the Cabinet Secretary. The recommendations given by the Cabinet Secretary-led group were forwarded to the Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, which gave its ‘in-principle’ nod for the national carrier’s strategic sale. Air India’s privatisation was first proposed in 2000 when the previous National Democratic Alliance (NDA) government decided to sell 51% of equity of the erstwhile domestic airline Indian Airlines, with 26% stake to a strategic partner. It also decided to allow disinvestment of 60% of Air India, which was running international operations, with 26% foreign entity stake. The move was dropped after opposition from the then Civil Aviation Minister Sharad Yadav.

Why does it matter?

The government’s efforts to turn around the finances of Air India seem to have failed with the national carrier’s eroding market share, continuous losses and a mountain of debts. Air India has not registered profit since over a decade after the merger of the erstwhile Indian Airlines (domestic operations) with Air India (international operations) in 2007. However, the primary reason for Air India’s disinvestment was the government’s inability to cope with its debt of ₹52,000 crore. Around ₹22,000 crore of the total debt accounts for aircraft acquisition loan and the rest is related to debt for meeting its daily and operational expenses. Air India Chairman and Managing Director Ashwani Lohani recently said the “mountain of debt” which the present management “acquired appears insurmountable and is at the root of all the problems.”

Finance Minister Arun Jaitley said in an interview earlier this year that around ₹50,000 crore could be invested in social welfare sectors instead of financing Air India’s debt. The Central government has already invested ₹23,993 crore out of ₹30,231 crore slated to be pumped as equity into Air India till 2020-21 as part of the airline’s turnaround plan approved by the previous government. Air India’s market share has also eroded rapidly over the years due to competition from private players — from 19.4% in 2013 to around 13.3% in May 2017 — in the domestic sector, which made it unattractive to continue running its operations.

What next?

The good news is that within hours of the government announcing its plan to divest its stake in Air India, India’s largest low-cost airline IndiGo expressed formal interest to the Civil Aviation Ministry in taking over the international operations of Air India. However, it will take some time for Air India’s disinvestment to take off. It has formed a Group of Ministers, headed by Mr. Jaitley, to decide the modalities of disinvestment and come back with a detailed proposal. The group has to take a call on the quantum of stake sale, its unsustainable debt, whether to allow foreign investors to bid for the national carrier or not, if Air India’s operations will be split into domestic and international before sell-off and whether Air India’s subsidiaries will be divested simultaneously or separately.


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Printable version | Jan 17, 2022 8:22:11 AM |

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