Air India Sale: Things Everyone Needs To Know

The Group Ministers (GoM) led by Home Minister Amit Shah has approved the selling of Air India. Air India has belonged to the Indian Government for 67 years now, but as the panel as approved the Expression of Interest (EoI) after going through the interest of the potential buyers, it is clear that the government has made up its mind this time to sell the air line and clear Air India’s debt which stood as Rs. 58,351 core as of March 2019.  

After transferring a part of the debt i.e. Rs 29,464 core to a special purpose vehicle (SPV) Air India Assets Holding Ltd. The panel has reportedly approved to shift more debt of around Rs. 10,000 crore to this SPV. That leaves the flag carrier with a debt of Rs. 18,500 crore. 

The Tata Group, India’s largest conglomerate has submitted an Expression of Interest for the national airline. The Tata Group has had a significant expression of interest in the Air Asia through which they have submitted the proposal. If the deal is infact secured by Tata Group, it will be a full circle for the conglomerate, as they have been the pioneers in the Indian aviation sector and will be re-entering the market at a time when privatization is inevitable.  

Typically in a sale offer where the debt is backed by an asset, which in this case is the aircraft the response mostly is good. It all depends on how the new buyer actually plans to extract the maximum value by utilizing those planes. However, another negative point in the disinvestment act in that previous year was the one year lock-in for the employees. While it is still unknown that the condition is included in the upcoming EoI or not, experts say that it will be a problem for the new buyer.  

The national carrier however, has cut down its employees to less than half over the last few years, translating into a ratio of 84 stuffs against per aircraft. The corresponding ratio of other airlines like the Indigo and SpiceJet are 114 and 142 respectively. Also, despite being a PSU the Air India has the most highly trained employees especially on operations and engineering sides.  

With the two major negative points the reduction on the amount of debt and the highly trained stuff, being resolved, investing in Air India can actually become a great idea with its share in the international segment as well as the prized slots in international and domestic markets. According to Directorate General of Civil Aviation (DGCA) data for April-June 2019, the share of Air India in the international segment is about 34 per cent among domestic carriers and 11.62 per cent among all carriers flying out of India.  

After the fall of Jet Airways, Air India is the only full service domestic carrier serving to long haul destinations in the US and Europe. It has its slot among 6200 key cities like Delhi, Mumbai, London, Tokyo, etc. This immense value cannot be retained by other airlines over night.  

Also, unlike the previous time when the government has put out a 76 per cent stake on sale, the aviation minister Hardeep Singh Puri has already said that 100 per cent stake will be put on block. 

Another pull factor is the improving financial conditions, as the Air India is at a much better shape now than last year. As per civil aviation ministry estimates that in right months the Air India has registered a 12.92 per cent growth. The airline posted operating profits of around of Rs. 177.2 core during April-November 2019, which is much higher than 535.9 cores of operational losses in the corresponding last period. Its net losses which the airline has incurred due to huge interest cost have come down from Rs. 5149 core to Rs. 2857 core in the same period.