After a failed attempt before the May elections, the government seems determined to press ahead with the
disinvestment of Air India. Trade unions, analysts, consultants and political watchers have all taken sides in the ‘should the government sell Air India’ or ‘should it retain Air India’ debate. But the real question is can the government sell the airline?
Air India has run into a debt of Rs 50,000 crore by some estimates and the special purpose vehicle (SPV) named Air India Assets Holding Limited (AIAHL) has mopped up Rs 21,985 crore by way of bond issues since September 16 with the proceeds being utilised to repay the debt of the national carrier.
There is confusion about how the entity will be sold. Air India comprises the flagship airline, low-cost subsidiary Air India Express — which is headquartered in Thiruvananthapuram, a regional carrier named Alliance Air that operates only ATR turboprop aircraft. Together, there are 120 aircraft. The other arms are ground handling, engineering and hotel along with stakes in the catering unit!
Will an airline be interested in all this? Probably not. Will it be interested in parts? Most certainly yes.
The billion-dollar question has been who would want to buy Air India and the baggage along with it? A few like IndiGo have publicly stated that they are interested in the international operations if sold separately. While IndiGo is in contention because it is an airline operating out of India, the latest of deals in the airline space have been across boundaries with Delta acquiring stake in LATAM. Delta also owns a stake in AeroMexico and Virgin Atlantic.
The cross-holding of stakes in airlines or across the world is not uncommon. IAG (International Airlines Group), which owns British Airways and Iberia, sees Qatar Airways hold over 21 percent stake. With the industry as dynamic as aviation, Air India should look for suitors from all across the world. But Air India is not the only bride and in-fact, all other brides have the same characteristics as Air India.
Like Air India, many other government-owned carriers are in the market for privatisation and they are around for a very long time without success. Three to five government-owned carriers may be up for privatisation between now and 2021.
The competition starts closer home from Malaysia Airlines being the likely candidate for privatisation. The loss-making carrier, which has suffered two back-to-back tragedies (the doomed MH370 and MH17 flights), has been on a lookout for a potential investor as the leadership in the country has publicly admitted to looking for ways to turn the ailing carrier to profits.
The Indonesian government has been looking for a strategic partner to divest in national carrier Garuda Indonesia. Over the years, since the airline first mooted privatisation till date, the airline has started a low-cost subsidiary Citilink and has a stake in other ailing carriers in the country Nam Air and Sriwijaya Air, along with information technology company and an MRO (Maintenance, Repair and Overhaul).
In The Same Boat
Not long ago, the Philippines — another ASEAN member — was looking for a strategic investor for its national carrier Philippines Airlines. The proposal seems to be in cold storage for now but could be propped out anytime. The last major airline in Asia up for sale is Sri Lankan in neighbouring Sri Lanka. The airline has recorded losses for last four years and the recent attacks in capital Colombo are not going to help the airline attract more tourists. The airline was once part-owned by Emirates.
The last couple of years have seen the Gulf carriers struggle and while most are backed by the government, even when on a weak footing, there have been talks of divestment of government stake in Kuwait Airways. While the exact plans have been sketchy, the accelerated fleet modernisation is part of the plan to increase value for the entity.
The African continent, which has struggled with airlines in many countries, has a few airlines on offer for investors. Ailing South African Airlines – which has relied on bailouts from the government — has been on the brink of collapse for a while and is desperately looking for ways to sustain and grow and privatisation is a core part of the plan to make the airline competitive again.
Russian national carrier Aeroflot will be up for sale as well with the finance ministry there having put the airline in the list of major sale of state assets between 2020 and 2022.
In Europe, which has seen a lot of airlines shut down recently — Adria, Wow and Croatia Airlines, owned by the government of Croatia — has re-started the process of privatisation with an aim to get rid of its stake in the airline. The government of Croatia aims to inject up to 33 million Euros in the airline to ensure it remains attractive for a potential buyer. While Croatia has seen a lot of tourist influx, the airline has not been able to scale up and be profitable.
From the Philippines to Croatia, the naysayers of privatisation everywhere have one top point to make — undermining national interest in case of full privatisation.
What difference will the empowered committee of the Indian government make to attract bids of Air India? Time will answer this but from the list of airlines on the path of privatisation, Air India does look to have the maximum on its side — a stable government leading the sale, a large fleet, global alliance membership, growing economy and a market size like no other!
But the airline still has to compete with these many airlines, if it has to attract a foreign player. It’s a different case of one of the incumbents lap up the national carrier, and that throws up a different set of rules in the game called Indian Aviation.
Ameya Joshi is the founder of aviation analysis blog NetworkThoughts.