Flying Home – on Air India privatisation

News: Recently, the Tata group regained Air India by winning the bid of Rs 18,000 crore and acquired Air India after seven decades. Tatas will gain 100 percent ownership in Air India, Air India Express, and a 50 percent stake in the ground handling firm AI-SATS.

Why Air India privatization is seen as a beneficial move?

One, the airline had been losing money for the last 15 years. There are other government companies with a similar record, but the scale of losses was huge in the case of Air India.

Two, there was less hope available to transform the airline. The other difficulties with Air India were empty airport slots, 100 poorly maintained aircraft, and staff to be given terminal benefits. Hence, the write-off of the remaining Rs. 44,000 crore has been a win-win.

Three, the merger of Air India and Indian Airlines during the previous UPA government also resulted in disastrous consequences because the expected synergies were not realized. The then civil aviation minister was also questioned for ordering a huge number of aircraft, which led to the accumulation of more debt.

What does this sale symbolize?

One, it marks the first major complete privatization of a public sector entity in recent years. Officials in the finance ministry worked out how to finance the liquidation of Rs 61,000 crore, the left-behind debt.

The non-aviation assets left with the government are worth Rs 14,000 crore. However, the government is criticized for the speed and manner in which privatization is going on.

Two, the aviation industry is already struggling to recover from the shock of a pandemic. It will have to deal with legacy issues. For example, an aging fleet and human resources.

Three, it will have to retain all employees for a one-year period as per bidding conditions. The group has to face the claims on international assets of Air India by Devas Multimedia and its investors, who are trying to enforce its arbitration awards.

For this, Air India is seeking an end to the case on grounds that the ownership change prevents any claims of recovery of arbitration awards.

Four, it has to deal with other competing airlines such as Vistara and AirAsia India. It is possible that the Tatas will consider integrating their aviation ventures under a single entity.

Five, Air India will be added to Tata Group’s list of loss-making entities. It has been in the red for three years. However, Tata Steel may report higher profits due to increased steel prices. Hence, the scale of losses should reduce, which may reduce the cost of the remaining debt.

What does this sale imply for the government?

It is a milestone in terms of disinvestment, but it does not support the government’s disinvestment proceeds.  Only Rs 2,700 crore is to be paid to the government and the rest will be retained in the form of debt.

The government has set the target of Rs 1.75 lakh crore and till now it has collected only Rs 9,330 crore. DIPAM data shows that the government’s proceeds from disinvestment still remain short of the target.

Source: This post is based on the articles “Flying Home” and “Win-win deal: Why Air India privatization has drawn little to no criticism” published in Indian Express & Business Standard on 29^th Jan 2022.