The quest to sell Air India | HT Editorial

The government has yet again announced an attempt to privatise Air India. This is a good idea; it always was; a government has no business running an airline. Worse, running a loss-making airline that is loaded with debt (around Rs 60,000 crore) definitely falls in the category of a moral hazard. Can the State then, in all conscionability, allow a private airline to go bust?

The deal, this time, is sweeter — which isn’t surprising because there were no takers last time. In summary, the government will sell its entire stake, not just 76% like it planned to last time, and also all of its budget airline subsidiary, Air India Express, and 50% of a ground handling unit; transfer about Rs 23,000 crore of debt (a full Rs 10,000 crore lower than what it wanted to transfer last time); allow sale-and-lease back of aircraft; and require bidders to have a net worth of only Rs 3,500 crore (down from Rs 5,000 crore). Most of these are welcome changes. No one wants to be in a joint venture with the government in a business like aviation (and definitely not in Air India with all its unions). It is unfair to expect buyers to take on too much debt from the airline. Allowing sale-and-lease back opens up a financing option that most airlines use for capital. And a lower net worth threshold will expand the universe of potential buyers. Sure, buyers may not want to buy part of the ground handling subsidiary, but what’s on offer this time is all of a proper airline. Better still, Indian airlines that are bidding will not have to meet the net worth criterion. Foreign airlines can bid as long as their bids are in keeping with India’s rules governing foreign investment in airlines (though that was the case the last time too).

Will this get investors to bite? That depends on what the buyer is looking for, and its ability to fund and manage a turnover. Air India, along with Air India Express, has 146 aircraft, of which it owns 82, but its fleet isn’t contemporary. It has slots, although it has given away many on key routes to foreign airlines. It has a brand, but one that needs to be refurbished. It is also unclear whether the buyer will have the freedom to prune the number of employees, although the airline now has only 14,000-15,000 employees. The sweeter deal signals the government’s intent. But it now needs a buyer with the intent to close.