Economy and Business

Government’s approval to divest Air India is welcome

The government’s in-principle approval to divest stake in the loss-making national carrier Air India is welcome. A privatised Air India would cease to be a drain on the exchequer and also gain a sustainable capital structure and become more efficient.

Jun 30, 2017
The government’s in-principle approval to divest stake in the loss-making national carrier Air India is welcome. A privatised Air India would cease to be a drain on the exchequer and also gain a sustainable capital structure and become more efficient.
 
But will any sane investor buy a stake in the company that is laden with debt even if 100% equity is handed over for, say, Rs1? Air India’s total debt is over Rs52,000 crore, and the annual interest outgo is about Rs4,500 crore. The best way is to let potential investors bid for Air India, and select the bidder who is willing to take on the largest amount of debt — the government’s payout should be the lowest.
 
Reportedly, Air India’s physical assets are valued at around Rs25,000-30,000 crore. It also owns other assets such as slots in key airports around the world and bilaterally negotiated rights to carry passengers to and from key markets. An investor who takes over the airline would have to generate profits on a scale that would make the deal worthwhile.
 
 
The load of debt that can be serviced would depend on how efficiently the investor expects to run the business. The government should divest the airline to the bidder who has the entrepreneurial ability to service the largest amount of debt.
 
The group of ministers to look at issues such as how to tackle the portion of Air India’s unsustainable debt and eligibility criteria for bidders, besides hiving off assets to a shell company and divestment of the airline’s profit-making subsidiaries, must take quick decisions.
 
Ideally, strategic investors who understand the airline business should be allowed to bid to take firm control of Air India. Bidding in an auction that is open to any investor qualified under the law to bid would reveal both the best price and the right buyer. The point is to move fast.
 
Economic Times, June 30, 2017

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