PRIVATISING AIR India could turn out to be one of the smartest decisions of the Narendra Modi government.
Laden with a huge debt, shrunken routes, reduced landing rights and deteriorating service, selling Air India is clearly the wisest option.
Air India was effectively ruined by the UPA government from 2007 onwards. Civil aviation minister Praful Patel disastrously merged it with Indian Airlines and gave away the merged entity’s most profitable domestic and international routes to Emirates, Etihad, Jet and other airlines. From being India’s national carrier, accounting for a third of the total passenger traffic, Air India today has just under 14 per cent market share.
If ever there was a wilful destruction of India’s two airlines — Air India and Indian Airlines — the Congressled UPA government and its alliance partner, the Nationalist Congress Party (NCP), did an efficient hatchet job.
Handled well, privatisation could make the airline the Tatas founded in 1932 rise like a Phoenix from the ashes. The key question: are private sector buyers interested in Air India? Apart from Indigo Airlines, which has already officially expressed interest in a letter to the civil aviation ministry, there are several Indian and global airlines and private equity players who would be keen to own Air India.
The Modi government wants a quick sale, perhaps as early as next year. A crucial issue is whether to divest the whole of Air India or sell its subsidiaries (including Air India Express) and other assets in parts. Divesting the airline as a whole would likely fetch a better valuation.
With oil prices low, the economic fundamentals of the aviation industry have improved greatly since 2015. Air India too has cut its annual losses and is operationally profitable. With staff rationalisation and better route utilisation its balance sheet could improve further.
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Denne historien er fra August 5, 2017-utgaven av Businessworld.
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