What is the problem with Air India?

Air India’s huge debt may be repelling buyers

May 31, 2018 12:02 am | Updated 12:02 am IST

NEW DELHI, 30/06/2016: Airbus A 320 aircaraft operated by Air India taxis at IGI Airport, in New Delhi.  
Photo: V. Sudershan

NEW DELHI, 30/06/2016: Airbus A 320 aircaraft operated by Air India taxis at IGI Airport, in New Delhi. Photo: V. Sudershan


What is the problem with Air India?

The sale of government-owned airline, Air India, is in jeopardy due to a lack of buyer interest. Private airlines such as IndiGo and Jet Airways did evince some enthusiasm but have since opted out of the race. This seems to have pushed the Central government to extend the deadline for submitting a bid. The Centre had earlier approved the sale of a 76% stake in Air India.

Why are there no buyers?

The airline’s poor financial situation is what makes it largely unappealing. The airline had a debt burden of around ₹48,781 crore as of March 2017, which poses a huge financial risk to a buyer.

To address this issue, the government has offered to transfer about a third of the debt to a special purpose entity. But a buyer will still have to assume responsibility for debt worth ₹33,392 crore after acquisition – still a significant burden for many. The total current and non-current liabilities of IndiGo, the market leader in terms of domestic market share, for instance, add up to only around ₹14,000 crore.

Apart from the huge debt burden, Air India has also been losing money for over a decade, with accumulated losses of ₹46,805 crore. In 2016-17, the airline suffered a net loss of ₹5,765 crore. A major reason behind its huge losses is the cost of paying interest on its massive debt.

Some analysts believe that Air India may not be worth anything to its buyers as they are unlikely to obtain any free cash flow after paying money to lenders. In fact, they may have to pay money from their own pockets if they assume personal liability for the debt.

What lies ahead?

A buyer with hopes of turning around Air India may still emerge out of the blue and make a bid. Some believe that such a buyer could combine its own business operations with Air India’s and reap the benefits of a synergy. Selling some of Air India’s assets to pay back a portion of the debt and renegotiating loans are other options on the table. The buyer could also make use of Air India’s accumulated losses to offset tax payments in the future. This will reduce the effective debt burden.

If no buyer turns up, the government could be forced to either continue running Air India using taxpayer money or just shut it down and sell off its assets.

Top News Today

Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in


Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.