Air india privatisation high hopes

Air india privatisation high hopes

The Centre could add a few more changes to make Air India tempting for investors

Nine months after the Union Cabinet’s in-principle(as a general idea or plan, although the details are not yet established) nod for offloading the government’s stake in Air India, the ball has finally been set rolling(To set something, often a process, in motion; to begin) to privatise the bleeding airline. A preliminary information memorandum was unveiled(show or announce publicly for the first time/remove a veil or covering from, in particular uncover (a new monument or work of art) as part of a public ceremony) last week by the Civil Aviation Ministry for prospective bidders. According to this, the Centre will divest 76% of its stake in AI. A 100% stake is being offered in its subsidiary Air India Express, and a 50% stake is on offer in its ground handling operations arm. Other subsidiaries, such as Alliance Air, Hotel Corporation of India, which owns the Centaur properties in New Delhi and Srinagar, Air India Air Transport Services and Air India Engineering Services, are not being sold — they will be transferred to a special purpose entity along with roughly a third of AI’s ₹48,781 crore outstanding debt. Effectively, the government is offering a majority stake in AI and AI Express with management control, as well as a cumulative(increasing or increased in quantity, degree, or force by successive additions) debt burden worth ₹33,392 crore. For prospective buyers, the attractiveness of AI’s international flying rights and slots would be offset by the possibility of taking on so much debt and putting a plan in place to whittle it down(to reduce the number of people or things, or the size of something) or refinance the loans. Details of the reallocation of these liabilities between AI and AI Express, and the logic behind it, will only be shared with bidders at a later stage when requests for proposals are issued.

Given the uncertainties over its debt burden, it will not be a surprise if those bold enough to make a bid for AI find it difficult to offer a lucrative(producing a great deal of profit) price to the government. It is worth pausing to see if serious investors are enthused(express eager enjoyment, interest, or approval regarding something/make (someone) interested and eagerly appreciative) by the government’s decision to retain 24% stake in the airline (which will possibly come with one or two bureaucrats nominated to the airline’s board of directors). In 2016-17, the airline suffered a net loss of ₹5,765 crore, owing mainly to its high interest costs. While debt has been the major reason for AI’s losses in recent years, operational inefficiencies and poor management have been bugbears(a cause of obsessive fear, anxiety, or irritation) for long. The government is expected to offload(rid oneself of (something) by selling or passing it on to someone else/relieve oneself of (a problem or worry) by talking to someone else/unload (a cargo)) its residual 24% stake at a later date, pinning its hopes on(rely heavily on) a better valuation after the new owner has fixed the airline’s legacy issues. The real benefit of privatisation will be that the airline will no longer drain taxpayer funds, after thousands of crores have been infused over the years to keep it up and running. That its new owner would get some room to rationalise its large workforce a year after the transaction and the government is thinking of footing the bill for some benefits paid to retired employees, such as complimentary air tickets, sounds good. The government is understandably keen to close the AI sale transaction soon, preferably by early 2019, in order to bolster its reformist credentials. But investors will look for the finer details to ascertain the carrier’s true worth.