The Telegraph
Monday , June 26 , 2017

Govt divided over Air India future

New Delhi, June 25: The civil aviation ministry will prefer to sell off Air India's subsidiaries to partially clear the national carrier's huge debts rather than go in for an immediate privatisation.

The ministry has objected to Niti Aayog's proposal to sell off Air India as there will be no takers given the huge debt of Rs 52,000 crore.

All the options to restructure Air India's debt for a turnaround, including the Niti's Aayog's suggestion on privatisation, are expected to be taken up by the cabinet this month.

According to the civil aviation ministry, hiving off some of Air India's subsidiaries such as the engineering and ground handling units could raise cash; this and the restructuring of debt could nurse the airline back to health.

"Trying to sell something which has few takers is bad strategy... and spending money to sell something is even worse," said top civil aviation ministry officials.

At the preliminary inter-ministerial meetings, the ministry has questioned the proposal to write off debts or restructure them just to make the carrier attractive to a private buyer.

If such a step is indeed taken, the government can itself run the airline as Air India has started making profits, instead of bringing in a private party. Air India had made an operating profit of Rs 105 crore in the last fiscal.

"We are saying that if the cost of privatisation is the government having to write off debt, then is it worth it?" officials said.

Till now, the finance ministry has staved off any loan write-off plans, while the lenders are not too keen to restructure without seeing some money on the table.

Officials consequently feel selling off subsidiaries could be a better way to earncash that could be brought to the table while negotiating a debt recast with lenders.

Some of Air India's subsidiaries are ground handling arm Air India Air Transport Services, Hotel Corporation of India (which owns Centaur at Delhi and Lake View in Srinagar), the charter business as well as engineering arm Air India Engineering Services.

Officials feel the sale of the subsidiaries or even the sale of strategic stakes in them could fetch between Rs 20,000 crore and Rs 25,000 crore.

Ministry officials point out in the past there had been considerable interest from several quarters, including Singapore and the Gulf, for joint ventures with Air India in both ground handling and engineering.

The subsidiary which does ground handling for several foreign airlines besides Air India and the engineering outfit which also services other airlines' aircraft were hived off into separate but wholly owned companies in 2012 when the cabinet took a decision to inject money into the national carrier over the next eight years.

The finance ministry, which has been pumping small doses of money every year into Air India, is reluctant to spend more. The airline had landed up in this situation because of the loans it had taken to add some 111 aircraft to its ageing and depleted fleet.

At that time, the ministry had encouraged it to order more aircraft than it said it required, arguing traffic will grow at faster rate than the projections.

AI officials say "injection of money in driblets has not helped. In 2012 itself we had sought a one shot help. That never came" .

Most civil aviation experts feel the airline's financial situation has touched a low on account of a botched up merger between a profitable Indian Airlines and a sick international arm - Air India.

They also blame an unexplained policy of shutting down existing profitable routes as well as the award of a large number of bilateral flying rights to the Gulf states, which ensured that Indian travellers on the lucrative European and US routes flew via these regions than take direct flights.

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