Govt’s Air India revival plan: Disinvestment, privatisation on the table

With state-run carrier Air India reeling under financial pressure, the chorus for its disinvestment has off late gained momentum, with Finance Minister Arun Jaitley being the latest to have suggested the same.

Written by Sunny Verma | New Delhi | Updated: May 31, 2017 8:36:54 am
air india, air india disinvestment, air india plans, arun jaitley, business news The ministry is working on a number of suggestions given by Niti Aayog on revival of Air India which include stake sale to a strategic investor. (Representational)

The Centre is examining all options, including disinvestment and privatisation of Air India, in order to turnaround the state-owned airline burdened by a mountain of debt, top aviation ministry officials said. A decision on the future course of actions for Air India is expected to be taken within three months. The ministry is working on a number of suggestions given by Niti Aayog on revival of Air India which include stake sale to a strategic investor. Air India’s consolidated debt has risen to around Rs 50,000 crore, even as the merger between the Air India and Indian Airlines approved in 2007 did not lead to the desired benefits that were expected to accrue from the merger — a matter now being probed by the Central Bureau of Investigation (CBI).

“Niti Aayog has made a recommendation for the course of action for Air India. They have suggested to take steps to make it a strong and viable airline. All courses of action are being examined by us to ensure this. Right now of course we can’t disclose beyond this point. We are not closed (to) any options,” Union Minister of Civil Aviation Ashok Gajapathi Raju said on Tuesday. Minister of State for Civil Aviation Jayant Sinha on Tuesday said the government is “considering all alternatives for making Air India into a stronger and even more viable entity” and it is working on a winning strategy for the carrier.

The ministers’ comments come days after finance minister Arun Jaitley said the private sector was capable of handling 100 per cent traffic in the aviation sector, indicating the need to disinvest the government’s stake in Air India. The Economic Survey 2017 had also suggested that government should privatise Air India. The airline earned an operating profit of Rs 105 crore in 2015-16 and expects to post similar level of operating profit in 2016-17. But the burden of servicing the debt, which totalled Rs 46,000 crore at the end of March 2016, led to the airline incurring net losses. Its net loss narrowed to Rs 3,836 crore in 2015-16 as compared to Rs 5,859 crore in 2014-15.

Raju said the aviation ministry will cooperate with the CBI, which has registered three FIRs and launched a preliminary enquiry to probe alleged irregularities in Air India-Indian Airlines merger and purchase of 111 aircraft, leasing of planes and giving-up of profit-making routes by Air India. These decisions, according to the CBI, caused a loss to the tune of thousands of crores of rupees to the exchequer. “Whatever the CBI does, that they are doing, we will cooperate with them, we have nothing else to say on that,” Raju said. Raju and Sinha were speaking at a press conference to mark three years of BJP-led government at the Centre.

The Congress-led UPA government pushed through the Air India and Indian Airlines merger in 2007, as it was expected to lead to cost savings and improved financial performance of the combined entity. As the synergies expected from the merger did not materialise and the combined entity’s financial performance deteriorated over the years, Air India has survived under a financial restructuring and turnaround plan in 2012 funded by the Centre. Sinha said that the “strategic and operational logic that would drive a merger has been difficult to achieve” in the case of merger of the two state-owned carriers. Under the turnaround plan, Air India will get equity infusion of Rs 42,182 crore over the period from 2011-12 to 2031-32, which is linked to a number of performance parameters. Till 2015-16, the Centre had infused equity worth Rs 22,280 crore.

In its audit report on turnaround plan and financial restructuring plan (TAP/FRP) of Air India released in March, the Comptroller and Auditor General of India (CAG) said Air India earned surplus over variable cost during 2012-13 and 2014-15, but it failed to generate enough surplus to meet the total cost, the deficit over total cost being Rs 5,514 crore in 2015-16. The CAG report also noted that the benefits for Air India from the FRP have been largely eroded by high volume of short-term loans.

A government official said the civil aviation ministry will review Air India’s turnaround plan in the backdrop of fresh discussion for stake sale in the national carrier. The government is expected to take a decision on the future course of action for Air Indian within three months, the official said.

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