After several failed attempts, the Union government, on Friday, announced the sale of the national carrier Air India to Tata Sons. This marks the first major outright privatisation of a public sector company in almost two decades. That there was little opposition to the sale from employees of the beleaguered PSU or, for that matter, from political parties, suggests an acceptance of the fact that the government could no longer throw good money after bad. Considering the long-standing struggle to sell the airline, the pragmatism shown by the government this time around in tweaking the modalities of the sale agreement to make it an attractive proposition, sends an unambiguous message — about its determination to push forward with a privatisation agenda.
The deal will strengthen the Tata group’s foothold in the aviation sector — it already owns stakes in Vistara and Air Asia. Taken together, the market share of the three airlines stood at 26.7 per cent in the domestic air passenger market as of August 2021. With this acquisition, the Tatas will also gain access to landing and parking slots at domestic and overseas airports at prime locations like London and New York, though dealing with high cost structures and a bloated payroll could prove challenging. It is possible that the Tatas may consider integrating all their aviation ventures leading to consolidation in the market — the condition that the new owner would be unable to merge the airline into an existing business for a three-year period has been waived.
With the conclusion of this sale, the government will no longer need to constantly infuse cash in the loss-making enterprise. It has pumped in around Rs 1.1 lakh crore since 2009-10 to prop up the airline. In 2019-20 alone, the airline’s operational losses were to the tune of Rs 8,743 crore. This now frees up scarce resources, money better spent on providing public services like health and education. On its part, the government has also displayed flexibility in pushing the sale by retaining part of the debt, as previous attempts to sell failed to elicit interest with private players reluctant to step forward to take on the mountain of debt the airline was drowning under. The deal with the Tatas will be executed at an enterprise value of Rs 18,000 crore as against a reserve price of Rs 12,906 crore. Of this, Tata Sons will pay Rs 2,700 crore in cash, while Rs 15,300 crore of the airline’s debt will be retained by it. The remaining debt will be transferred to a special purpose vehicle, part of which will be retired by monetising assets such as real estate. Now that this complex sale has been closed, attention will turn to the privatisation/disinvestment of PSUs that has been on the agenda for some time — Bharat Petroleum Corporation Limited, Container Corporation and others — prompting a re-rating.
This editorial first appeared in the print edition on October 11, 2021 under the title ‘Lifting off’.