On Thursday, June 27, the Indian government set the record straight on Air India, saying the airline was on track for disinvestment and sale. Previously, a junior minister told the Lok Sabha that privatisation for the airline was suspended because of high oil prices and unfavourable exchange rates. However, the government says that a nodal cell to fast track Air India’s sale will be established by July 1.
“For taking forward the process of disinvestment of Air india, it has been decided to constitute a nodal cell in Airlines House (Delhi HQ)… (A) data room shall be… fully operational effective July 1, 2019… Aruna Gopalakrishnan, ED (corporate affairs), shall be the single-point nodal officer on behalf of AI to interact with the various advisers for the purpose of disinvestment of AI. Further, Uma Maheshwari, who recently retired as ED (IT) will assist Aruna Gopalakrishnan on a full-time basis,” said the government, according to Times of India.
In a series of tweets, the Ministry of Civil Aviation said that the government had decided in 2018 that “volatile crude prices & adverse fluctuation in exchange rates” were “not conducive” to Air India’s sale.
But now, the government is working towards the disinvestment and future sale of the cash-strapped airline.
Air India heads for disinvestment with no buyers
Air India’s debt exposure is a little over than Rs 50,000 crore or $8 billion.
The government tried to privatise the national carrier and announced this decision on March 28, 2018. It was offering a 76% stake in the airline, a 100% stake in Air India Express, and a 50% stake in Air India SATS Airport Services.
However, when the deadline for formal bids passed twice without any prospective buyers, the plan was considered a flop. The government insisted on retaining its 24% stake believing it would inspire confidence in the airline.
However, the government’s presence was one of the reasons cited for the lack of interested private investors.
Also read: Is IndiGo headed the Jet Airways way? Another crisis hits aviation sector
When rumours of a possible sale offer made the rounds, IndiGo airlines, a Jet Airways-Air France-KLM consortium, SIngapore Airlines, Vistara Airways and Qatar Airways were also named in the media are potential buyers.
However, when the companies were required to make their interest formal, no one stepped up.
In May 2018, the Civil Aviation Ministry tweeted, “Further course of action will be decided appropriately.” Now, it seems that Air India was, at the time, not an attractive commodity in the context of high oil prices and a poor exchange rate.
Jet Airways, Kingfisher: India’s aviation woes
Air India is hardly the first major carrier to find itself in financial trouble. Jet Airways, India’s longest-serving and largest airline, has also filed for bankruptcy.
Jet Airways also defaulted on loan repayments and staff salaries. In February, the airline asked employees to take a 25% salary cut and then ended up paying only 84% of its staff.
The lenders stepped in and began looking for bidders to take over.
To keep itself afloat in the meantime, Jet still required emergency funding of Rs 1,500 crore. However, given the lack of bidders and casual nature of the bids they did receive, the lenders decided not to provide Jet with interim funding.
That decision led to the airline being temporarily suspended, plunging its 22,000-strong staff into unemployment.
Following this, several rounds of negotiations with a potential bidding consortium were fruitless and the plane eventually headed to bankruptcy court when two of its creditors filed petitions against Jet to get their dues back.
Also read: No end to Choksi, Nirav, and Mallya’s troubles: All the latest on India’s fugitive trio
Jet co-founders Naresh and Anita Goyal have been barred from travel by the Ministry of Corporate Affairs (MCA) that issued a circular against the couple. The Goyals, who were asked to deboard an Emirates flight en route to London, are suspected of committing fraud.
They are being investigated by the Income Tax Department and MCA by for “suspicious transactions” found in Jets accounts.
The Goyals seem to be following in the footsteps of Vijay Mallya, owner of Kingfisher airline who allegedly committed defrauded lenders and stole Rs 9,000 crore.
Mallya, who absconded to London just days before lending banks began insolvency proceedings against him, has been branded an economic fugitive. The Enforcement Directorate (ED) requested the UK government to extradite him back to India, a request that UK Home Secretary Sajid Javid approved in February.
Mallya, now battling the extradition proceedings, is also opposing the liquidation of his assets. The ED said that the lenders can sell off Mallya’s assets and repay themselves, as long as they agree to return the money in case Mallya is found innocent of fraud.
Even beyond fraud and theft, India’s aviation industry has an uphill climb. Many of the expenses incurred by airlines are in the US dollar, so a depreciating rupee spells financial trouble. Even rising fuel prices is a major issue for Indian carriers.
Although business sense dictates that these costs be offset by increased ticket prices, no Indian carrier owns a significant enough market share to raise prices unilaterally. So, the longer Air India is drip-fed by the Indian government— meaning infused with enough cash to function but not enough for a full revival— the longer other airlines suffer because they need to compete with Air India’s cheap prices.
While all industries are impacted by slow and stagnant growth, the Indian aviation industry sees its effects sooner and more publicly than most.
Rhea Arora is a Staff Writer at Qrius
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