Air India Privatisation Should Be Fast-Tracked, Delay Will Erode Its Value, Says Aviation Think Tank

January 9, 2018, 1:45 PM
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Days after a parliamentary panel advised the government to give five more years to revive Air India, aviation think tank Centre for Asia Pacific Aviation on Monday said that postponing disinvestment of the state-run airline would further hit its valuation. CAPA Chief Executive Kapil Kaul said: “Parliamentary panel recommending divestment of Air India be postponed by 5 years will further erode its value. CAPA estimates that the government would need to inject additional USD 2.5-3 billion funding, and these may be conservative estimates.”

CAPA chief was responding to panel’s suggestion that asked the government to revisit its decision to privatise Air India at the end of the 10-year turnaround plan in 2022. The CAPA further said that the process of Air India’s privatisation should be ‘fast- tracked’ to maximise investor interest and value for the government.

According to a report in Mint, the government will invite expressions of interest for Air India sale after the budget presentation on February 1. “The invitation calling for expressions of interest from potential bidders is being drafted, and will be submitted to a ministerial group that has been tasked with Air India’s privatization,” the report quoted civil aviation secretary Rajiv Nayan Choubey as saying.

This week, a parliamentary panel in a report concluded that this wasn’t a right time to privatise the national carrier and the Centre should review its decision. The panel’s observation came a week after the government’s premier policy advisory body NITI Aayog in its report on Air India made it clear that the further financial support for the loss-making airline was not viable.

However, the parliamentary committee argued that as per the turnaround plan, the airline should be given time till 2022 to revive. The Turnaround Plan (TAP) was approved by the previous united progressive alliance government. Under the plan, Air India was to receive a bailout package of up to Rs 30,231 crore for a period of 10 years, that began in 2012.

The panel blamed the Ministry of Civil Aviation’s policy directions for Air India’s massive debt and said that the national carrier may be permitted to function as a government PSU with less government control. It also observed that the equity infusion in Air India was made on a piece meal basis that affected the airline’s financial and operational performance and forced it to borrow at a higher interest rate to meet the shortfall.

As on 30 September last year, Air India’s total outstanding loans stood at Rs 51,890 crore. Earlier this month, the government informed the Rajya Sabha that the national carrier’s projected net loss for 2017-18 was estimated at over Rs. 3,500 crore, less than the provisional figure for 2016-17.  In 2016-17, the airline had a net loss of Rs 3,643 crore and the operating profit was Rs 215 crore.

As per latest figures, Air India is projected to increase its operating profit to Rs 531 crore in 2017-18. The panel perhaps has taken this operating profit into consideration to say that the committee ‘strongly feels that it will not be appropriate at this stage to disinvest when Air India has started earning profit from its operations’.

The parliamentary panel does not only talk about the national airline’s revival but also express its concern about the job loss that may happen due to stake sale. It asked the government to make an assessment of the job loss before deciding on privatisation. “If the disinvestment of Air India and its subsidiaries is inevitable, the Committee emphatically recommends that the interests of employees should be protected,” the panel in a report said.

The government has already started the process of privatisation of the state-owned carrier. Last year in June, the Cabinet Committee on Economic Affairs gave an in-principle approval for considering strategic disinvestment of Air India and its five subsidiaries and constitution of Air India Specific Alternative Mechanism to guide the process of strategic disinvestment. After this, a committee of specific alternative mechanism was constituted which has sought suggestions on the proposed disinvestment of the airline. The committee is headed by the Finance Minister and has Commerce Minister Suresh Prabhu, Transport Minister Nitin Gadkari and Railway Minister Piyush Goyal.

Civil Aviation Minister Ashok Gajapathi Raju recently explained the process of disinvestment and said: “This Committee will take a decision as to what has to happen there. As of now, if any suggestion from any quarter are welcome and the Government will definitely take them into consideration. The ultimate idea is to make Air India a vibrant airline with a professional management. Without professionalism in the management, there is hardly going to be any improvement in Air India.”

Source – GConnect

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