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Air India Boeing B747-400
Image: picture-alliance/Joker/H. Khandani

India's iconic airline up for sale

Murali Krishnan New Delhi
July 6, 2017

After years of mulling, the Indian government recently decided to privatize state-owned Air India. But the loss-making, debt-crippled airline doesn't seem to be an exciting bet for private players to take on the mantle.


After a long period of pondering over what to do to improve the fortunes of the ailing state-owned Air India, the Indian cabinet last month finally approved plans to privatize the country's flagship carrier.

The airline has found itself in dire financial straits over the past decade, saddled by a gigantic debt amounting to around 520 billion rupees ($8 billion, 7.05 billion euros) and having to repeatedly go cap in hand to the government begging for funds to keep it running.

In 2011, the company's coffers dried out to a point where it could not even pay salaries of its employees on time. The then Indian government decided to grant assistance to the tune of about 300 billion rupees over the next decade.

The carrier's finances have seen little turnaround since then. Air India, once the country's biggest airline, has seen its domestic market share decline to 13 percent as private rivals such as IndiGo and SpiceJet have expanded.

Who's to blame?

Political interference, coupled with a raft of questionable decisions and poor strategies, has been said to have been at the root of the airline's problems.

Air India Flugbegleiterinnen in Boeing 787 Dreamliner
In 2011, Air India's coffers dried out to a point where it could not even pay salaries of its employees on timeImage: Getty Images/AFP/Raveendran

The sad state of affairs prompted the current Indian government, led by Prime Minister Narendra Modi, to give "in-principle" approval to sell Air India.

"There are a lot of legacy issues. Air India's debt is the problem. If you can solve that problem, the puzzle of Air India will get solved," India's Civil Aviation Minister Ashok Gajapathi Raju was quoted by the Hindu newspaper as saying. "It's unfair to the taxpayer if you have to keep pouring their money there. Beyond a point, it just can't happen."

A committee headed by Finance Minister Arun Jaitley is going to iron out the details of the divestment process, including the size of the stake to be sold, the government said.

But any attempt to sell stake in Air India would be a messy and protracted affair, say industry experts, pointing out that previous efforts in that direction have foundered, partly due to a lack of interest from potential buyers and opposition from its employee unions.

A recent tweet by Anand Mahindra, the Indian billionaire who heads the Mahindra Group conglomerate, shows the complexity involved in dealing with Air India. "I see myself as a generally courageous person. But I confess… I don't possess THAT much courage," he tweeted.

Still, Indian media reports suggest that a few firms - such as the Tata group and India's biggest airline, IndiGo - may seek to acquire a stake this time round.

Tata, which owned Air India before the carrier was nationalized nearly 70 years ago and tried to buy the airline in a failed privatization process a decade and half ago, has so far not made any official statements regarding the company's plans.

Experts point out that one of the major irritants for any potential buyer of Air India stake will likely be its massive debt. The airline's annual interest payments on this debt alone run up to about 45 billion rupees. That's why they stress that the government would have to write off the debt if it was to attract an investor.

"Even a well-executed asset sale may not fully cover its present liabilities. Its privatization will only be possible if the entire debt is written off and fresh equity is brought in by new players," M K Venu, an economic analyst, told DW.

Attractive proposition?

But if the issues related to the heavy debt burden could be resolved, then analysts stress that Air India might turn out to be an attractive proposition.

The carrier has a large fleet and significant market share as well as sought-after landing slots in international aviation hubs. Its established network and massive infrastructure and ground-handling operations also have the potential draw in potential suitors.

Moreover, Air India is a part of Star Alliance, the biggest airline grouping, which counts Singapore Airlines, Lufthansa, United Airlines and Thai Airways among its members.

Air India Airbus A319
Air India has a large fleet and significant market share as well as sought-after landing slots in international aviation hubsImage: Getty Images/AFP/N. Seelam

The other major obstacle to divestment is the unions representing Air India's employees, which have fiercely opposed a sale.

Terming Air India as "one of the jewels" of public sector in the country, the Communist Party of India (CPI) said the national airline was in losses due to the alleged "inefficiency" of administration.

"We condemn the move. The government is hell bent on destroying the public sector, without making any serious efforts to set right things in loss making public sector enterprises and industries," the CPI alleged in a statement.

Air India employs over 25,000 people, who have opposed the company's privatization and demanded that their salary dues be cleared. Seven unions of Air India employees have warned the government of large-scale protests.

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