The Telegraph
Since 1st March, 1999
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Air India weighs 15% selloff via IPO

Calcutta, Oct. 7: The National Aviation Company of India Ltd (Nacil), the state-owned entity which has been formed with the merger of Air India and Indian, is considering a proposal to offload 15 per cent of its equity through an initial public offering (IPO).

Nacil chairman V. Thulasidas said the government would take a decision on the flotation after all the modalities for the merger are completed. The Union cabinet had cleared the proposal for merger on March 1 but it is yet to be formalised.

The IPO is part of a two-phased financial recast of the airline. Before the IPO, the company will offer employee stock options to its staff, Thulasidas said. The merged airline will have 34,000 employees.

Thulasidas said the new state-owned airline would be called Air India for both domestic and overseas operations.

Alliance Air, the wholly owned subsidiary of Indian which flies to small towns, will become a part of Air India.

The airline is expanding its fleet and has initiated a process to be a member of the Star Alliance, the oldest airline network which has 17 full members and 15 regional members.

Star Alliance members include Swiss, Thai, United, US Airways, Singapore Airlines, Lufthansa and Air Nippon. The alliance covers 155 countries.

Nacil has placed orders for 111 aircraft, of which 16 have been delivered, with the rest to follow in the next three-and-a-half years. Chicago-based Boeing will supply 68 planes; the rest will come from Airbus.

It will need to invest Rs 45,000 crore in new planes and negotiations have already begun with a syndicate of banks to tie up funds.

Thulasidas said discussions had already begun with Star Alliance. Air India will be the first airline from the country to join a global alliance, which will provide a range of benefits to its passengers, including a wider frequent flyer programme.

The national carrier will make a final presentation before the alliance in November. Only one airline from a country is admitted as a member, with exceptions made for larger nations such as the US and China.

Analysts say benefits to an airline of being a member far outweigh advantages of being an independent player. The benefits include an extended and optimised network, realised through code share agreements.

There are also cost reductions through similar marketing strategies and sharing of maintenance and operational facilities, such as in catering and issuing of tickets.

Europe hub

Air India is planning a hub in Europe. “Apart from London, we will have a second destination in Europe which will also be our hub,” Thulasidas said.

He said Air India would operate from Calcutta to the proposed hub.

“We are looking at airports which are big but smaller than Heathrow or Frankfurt.” Munich is an airport under consideration. Thulasidas said the final decision would be taken in a few months.

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