Cabinet nod for disinvestment: Air India stake sale takes off

Experts say Air India’s privatisation needs to be done in a timely manner to prevent erosion of value
The government on Wednesday gave in-principle approval for disinvesting stake in state-owned Air India. Whether or not the airline will be fully privatised is not yet known. 

“The Cabinet has accepted the recommendations of the NITI Aayog and has given an in-principle nod for disinvestment of Air India and its five subsidiaries,” said Union Finance Minister Arun Jaitley. He, however, did not give a timeline for the process.

The government will now have to set up a group of ministers (GoM), headed by Jaitley. It will decide how much stake will be sold and the process of disinvestment. Some of the issues that the GoM will deliberate upon are how to tackle the unsustainable portion of Air India’s debt, eligibility criteria for bidders, hiving-off assets to a shell company, and disinvestment of the airline’s profit-making subsidiaries.

Air India has five subsidiaries — Air India Engineering Services, Air India Transport Services, Air India Charters, Hotel Corporation of India and Air India SATS (along with Singapore Airport Terminal Services). 

The NITI Aayog has suggested complete privatisation. During an inter-ministerial discussion, the Ministry of Civil Aviation had recommended selling Air India’s assets and profit-making subsidiaries to reduce debt. The state carrier is saddled with debt of Rs 46,500 crore. The previous United Progressive Alliance (UPA) government’s turnaround plan of infusing Rs 30,000 crore showed little improvement in the financial metrics of the company. The Atal Bihari Vajpayee government before it had also planned to disinvest stake in Air India, but found no buyers. The company reported a loss of Rs 3,643 crore in FY17, earning a revenue of Rs 22,521 crore.

Experts welcomed the government’s decision. “Air India’s privatisation has been long overdue. Every year’s delay has only cost taxpayers and eroded its market value,” said Amber Dubey, partner and head of aerospace and defence at consultancy  KPMG.

Dubey also said delay in the disinvestment will erode Air India’s market value. “There is also a time factor. If we wait for Air India’s books to be cleaned up by way of debt restructuring, the negotiations, board approvals and legalities involving various lenders may take a very long time. Air India’s valuation will only go down further. The asset-leasing option in turn can be implemented quickly and the debt restructuring can be done later,” he said.

Aviation think tank CAPA also said on Wednesday subsidising Air India by pumping in hundreds of millions of dollars is not desirable. “Subsidising Air India to the tune of hundreds of millions of dollars is… not desirable for a government which has so many other pressing economic and social priorities.” 

The government’s role as a major operator in the aviation sector through its ownership of Air India and the Airports Authority of India will continue to be a negative influence on policy outcomes, its report said.

Employees of the airline, however, will not be too happy with the divestment decision. Seven of their unions had earlier warned the government of large-scale protests if the NITI Aayog proposal to privatise the national carrier was approved. 

Before the Cabinet decision was announced on Wednesday evening, an employees’ union met NITI Aayog Chairman Arvind Panagriya and demanded that the government waive the airline’s debt, instead of selling it to a private player.

Expressing concerns about the uncertain fate of 25,000 employees, the union representatives have also demanded that if Air India is privatised, their salary dues should be cleared. Another union is planning to meet Prime Minister Narendra Modi.