The government has decided to split state-run Air India in an effort to make it more lucrative for potential buyers as the airline stays afloat on government bailout.
The Ministry of Civil Aviation today invited bids to sell stake in Air India and Air India Express as a single unit. This includes a 76 percent stake sale in the debt-laden national carrier and transfer of management control. Additionally, the government will sell its entire stake in the budget arm Air India Express and 50 percent in the ground handling unit, the statement added. Air India will keep its airport real estate as a core operation for a minimum of two years.
Of the carrier’s total debt of Rs 48,700 crore, Rs 33,390 crore debt will remain with Air India and will have to be absorbed by the potential buyer. The balance debt will be allocated to a government holding company.
The best option would have been for the government to exit completely, former Air India executive director Jitendra Bhargav told BloombergQuint. “By holding 24 percent, the government can't hold out an assurance to anyone that it will not meddle in the affairs of Air India, something that's cost Air India dearly.”
The Cabinet Committee on Economic Affairs in June this year gave an in-principle nod for considering strategic divestment of Air India and its five subsidiaries. The Air India Specific Alternative Mechanism, led by Finance Minister Arun Jaitley, was to consider all options, including protecting employee interests and a voluntary retirement scheme.
In 2012, the government had approved a turnaround plan for the national carrier that involved equity support of Rs 30,231 crore over 10 years. The government has so far provided Rs 26,545 crore.
The government has asked bidders, with a minimum net worth of Rs 5,000 crore, to send expressions of interest by May 14. The winning bidder may be required to list Air India shares after the stake sale. The government may support the listing and sell its remaining shares in the initial public offering, the aviation ministry said.
Air India has been unprofitable since its 2007 merger with state-owned domestic operator Indian Airlines Ltd. The company made an operating profit of Rs 298 crore in the year through March 2017, primarily due declining oil prices. It still posted a net loss of Rs 5,765.16 crore, Minister of State for Civil Aviation Jayant Sinha said in Parliament on Feb. 8.
Indian regulations allow a foreign airline to buy as much as 49 percent of a local carrier, while overseas investors other than airlines can buy an entire carrier. The government in January tweaked these rules to include Air India which wasn’t a part of those rules until then.