Spruced up Air India likely to find takers

One of the primary reasons working in favour of Air India now is the government’s plan to clean up part of the airline’s burgeoning debt a major deterrent for investors earlier.

Published: 18th July 2019 07:29 AM  |   Last Updated: 18th July 2019 07:29 AM   |  A+A-

Air India (Illustration | Amit Bandre, EPS)

Air India (Illustration | Amit Bandre, EPS)

By Express News Service

NEW DELHI: State-run Air India, which has had little success in enthusing strategic investors so far, might finally be gaining some lustre in their eyes. Even as a final call on the percentage of stakes to be sold is yet to be taken by a Group of Ministers, officials say that the government is pressing ahead with its disinvestment strategy and has prepared separate notes for selling 100 per cent and 74 per cent stake in the airline.

To be sure, one of the primary reasons working in favour of Air India now is the government’s plan to clean up part of the airline’s burgeoning debt a major deterrent for investors earlier. Now, however, a decision has been taken to transfer nearly Rs 29,500 crore of Air India’s working capital debt not secured by assets to a new company: Air India Asset Holdings. Consequently, the airline will now have a debt of Rs 25,000 crore, mostly long-term debt secured by aircraft purchases. Interest outgo is also set to fall to Rs 1,700 crore a year. 

amit bandre

Another factor likely to increase interest is the fall of Jet Airways, which has made Air India’s international business look far more attractive. For instance, the five-million-per-year passenger market in Europe, which Jet dominated earlier, is now open for Air India to tap into since no other domestic player competes in the area (IndiGo has only just started a flight to Turkey). Similarly, in the US and North American market, Air India now reigns supreme among Indian carriers with Jet out of action.

Overall, a 12 per cent share of the international passenger market to and from India is up from grabs with the exit of Jet Airways. Reports also say that the government is planning to meet prospective buyers even before the expressions of interest are sought. It may be noted that Air India, with a 17 per cent market share already, clearly has the wherewithal to grab a large chunk of Jet’s market. Most of the other players are low-cost carriers and all of them, except IndiGo, have limited global operations mostly restricted to West Asia and Southeast Asia.

While it is no secret that Vistara and IndiGo will turn their focus in the coming years to the international market, Air India is currently far ahead of both. In the domestic market, too, the airline has gained significantly from Jet crisis, despite not having the luxury to add as many new planes as IndiGo. Its domestic market share rose from 12.2 per cent in January to 13.9 per cent in April. 

With 55 per cent of its fleet owned by Air India,new investors can monetise them, generating cash to meet some off its long-term debt obligations. With a fleet of 163 aircraft (including those of Air India Express and Alliance Air), Air India flies to 41 international and 54 local destinations. Earlier attempts to divest the airline failed to attract bidders, with potential investors fearing government interference since it was to keep a 24 per cent stake under the earlier divestment offer.

However, if the government intends to sell its entire stake, there are no reasons why investors would shy away, say experts. One contentious issue remains the large employee base (26,000). But, experts note that staff salaries as a proportion of revenue are manageable. “Restrictive clauses are likely to be replaced this time round as we need to re-kindle interest in the airline. However, protection will be given to existing employees,” said officials.

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