In what the government says will be the largest-ever privatisation exercise carried out in the country, minister of state for civil aviation Jayant Sinha announced on Friday that Air India will be run by a private player by the end of 2018 and the winning bidder will be declared by the end of June after a transparent disinvestment process.
Confirming that the state-owned national carrier will indeed be privatised, he said at least 51 per cent of the airline’s stake will be acquired by a private player or players. The government owns 100 per cent of Air India at present.
Finance minister Arun Jaitley had officially announced in his Budget speech on Thursday that the government intends to privatise the national carrier.
Mr Sinha said an information memorandum containing the assets of the national carrier will be issued very soon as a public document for potential bidders. Sources said that a Request for Proposal (RFP) would be issued within a period of 60 days for disinvestment. Once the bids are in, they will be opened under a transparent process, following which the winner will be announced. This is expected to take place by the end of June. The legal closure of the transaction will take place by the end of this year. The government has received two formal Expressions of Interest so far for Air India from aviation market leader IndiGo and from an unnamed foreign airline.
The information memorandum will be issued separately for each of the four separate sale processes. One will be for disinvestment of Air India, its low-cost arm Air India Express and Air India’s joint venture with Singapore Airport Terminal Service (SATS) known as AI-SATS, the second will be for the airline’s engineering services, the third will be for its ground handling services, while the fourth will be for its regional carrier Alliance Air, which operates to smaller towns in the country using ATR aircraft. The Centaur Hotels, and land and artefacts with Air India will be retained by the government as part of a Special Purpose Vehicle (SPV).
“We expect to have the winning bidder by the end of June,” Mr Sinha said. Civil aviation ministry sources also cited the examples of global carriers such as British Airways, Australia’s Qantas and Germany’s Lufthansa that had been privatised.
The words “strategic privatisation” were used for Air India by finance minister Arun Jaitley in his Budget speech in Parliament on Thursday, thereby clearly indicating that at least a majority 51 per cent stake in Air India will be sold by the government to private players. On Air India, Mr Jaitley had said: “The government has also initiated the process of strategic disinvestment in 24 CPSEs. This includes strategic privatisation of Air India.”
The NDA government’s move earlier this month to allow FDI by foreign airlines in debt-ridden Air India upto 49 per cent was an indicator that it was serious about disinvestment in the loss-making cash-strapped national carrier in order to bring about a fresh infusion of funds.
However, the government has already made it clear that the critical “substantial ownership and effective control of Air India” remains in Indian hands. The government had last year constituted an inter-ministerial group to chalk out the strategy in this regard.
Air India has incurred losses worth thousands of crores but is surviving based on a government bailout package of Rs 30,000 crores that began during the tenure of the UPA-2 government and which is continuing under the current NDA government. The government has already infused an equity of around Rs 25,000 crores into Air India in the past five years.
Air India has a debt burden of about Rs 50,000 crores and a large part of it is due to the loans taken (about Rs 22,500 crores) for acquisition of a total of 111 aircraft (68 for Air India and 43 for erstwhile Indian Airlines) in 2005-06. A financial turnaround plan was put in place for the airline in 2012 but the NDA government, after more than three and a half years in power, is convinced that this will not succeed in pulling the airline out of its financial woes.