17/07/2017 LSTV, Videos 0 comment

Air India Disinvestment | LSTV

Union Cabinet recently approved the disinvestment plan for Air India and its five subsidiaries. It is seen as one of the boldest reforms by the Government till date. It is being hoped that the decision will attract a positive response and will revive Air India which is otherwise ailing under a burden of huge debt and inefficiency.

Background

  • India is supposed to displace UK as the third largest aviation market by 2026 according to IATA. India’s air passengers will grow to 442 million by 2035 and Air India surrendered profitable routes to private carriers.
  • Air India’s market share today is around 14% while the debt is Rs 55,000 crore approximately. Air India is surviving on a bailout package of Rs 30,000 crore spread over 10 years. Bailout package was announced by UPA Government in 2012. NDA Government has continued with the annual equity infusion in Air India.

Need of disinvestment

The carrier has already been surviving on a bailout package. Last month, the NITI Aayog in its report had recommended the disinvestment of Air India therefore, the decision is very much in sync with NITI Aayog’s view. This decision does convey to the investors that India is serious about reforms and will not throw good money into something not working out well.

Solution adopted by Government

  • Civil Aviation Ministry was exploring all possible options for the ailing state run airline but no other options were found feasible, hence the Government decided to create a Group of Ministers tasked to deliberate upon the disinvestment process. The group is named as Air India- Specific Alternative Mechanism and it will be headed by the Finance Minister. The panel will decide on the extent of divestment and mode of carrying it out.
  • NITI Aayog is looking into the disinvestment issue, including a possible strategic sale.

Significance

Government money can be much better utilized to fund important social and infrastructure programmes that are actually in need of capital every year.

Factors to consider while disinvestment

  • To get the best return out of disinvestment, the Government needs to allow both domestic and foreign buyers to bid freely for stakes. For this to happen, the government will have to streamline its FDI policy so that foreign investors can buy a stake in Air India.
  • The Civil Aviation Ministry has also made a case for the sale of non-core assets first to pay off existing creditors, so that the airline becomes more attractive to private buyers.
  • The Government might also separately go for strategic disinvestment of Air India’s three profit-making subsidiaries – (MRO subsidiary) Air India Engineering Services Limited, (Ground handling subsidiary) Air India Transport Services Limited, and Air India Charters Limited.
  • The Ministerial group is also considering hiving off Air India’s assets and a portion of its non-aircraft debt to a special purpose vehicle (SPV) as a first step in this direction. It is also to be seen howthis disinvestment impacts UDAN.

Conclusion

The need of the hour is a good evaluation of Air India’s balance sheet and a practical plan to make the public-sector carrier attractive to any prospective buyer, whether foreign or domestic.

To listen to the full debate on LSTV Click Below

 

Raj Malhotra IAS Study Group.