Talks begin to divest AI arm:

Talks begin to divest AI arm:

Context:

Air works has expressed an interest in acquiring a stake in AIESL which has the largest MRO business in the country with a facility for component and engine overhaul.

Introduction:

• Informal talks have begun to find potential buyers for Air India’s subsidiaries, including its maintenance, repair and overhaul (MRO) business.
• An expression of interest from India’s oldest private sector MRO service provider, Air Works, has come as a short in the arm for the Centre that is considering an option to split Air India’s different businesses and hive them off separately.
• National carrier has India’s largest MRO unit for engines, components overhaul

MRO:

• MRO is a capital-intensive industry with a highly competitive environment, with low returns and there is a long payback or cost absorption period in view of the fixed overheads on infrastructure facilities and high wage costs due to licensed manpower, according to AIESL annual report 2014-15.

Key points:

• The Centre has already received a formal expression of interest from the country’s largest private carrier Indigo for Air India’s airline operations.
• The government may also hold talks with foreign MRO players such as Jordon Aircraft Maintenance Limited (JorAMCO), Hong Kong Aircraft Engineering Company (HAECO) and Ethihad Airways Engineering which are keen to invest in the MRO business in India to ascertain their interest in acquiring Air India’s subsidiary

Recent steps:

• On June 28, the Cabinet Committee on Economic Affairs, chaired by the Prime Minister, gave an in-principle nod for strategic divestment of Air India.
• The committee also approved strategic disinvestment in Air India’s subsidiaries, including AIESL, ground handling arm Air India Transport Services Ltd, Air India Charters Limited which operates Air India Express and Airline Allied Services Ltd, which operates Alliance Air.
• A group of Ministers under Finance Minister Arun Jaitley has been formed to decide on the modalities of Air India’s stake sale.
• AIESL has facilities at New Delhi, Mumbai, Hyderabad, Nagpur, Thiruvananthapuram and Kolkata  for carrying out maintenance, repair and overhaul on  various types of Airbus and Boeing aircraft
• AIESL has been incurring losses since its inception in 2013 when it was carved out of Air India as a separate business unit.
• In 2016-17, AIESL’s losses rose 17% to Rs 653 crore as per provisional estimates.