Photo: Abhijit Bhatlekar/Mint
Photo: Abhijit Bhatlekar/Mint

Govt needs to pursue Air India divestment with greater determination: CAPA

Over the last 12 months, since the divestment process was announced, Air India has experienced a loss of direction, with no major strategic decisions being taken, says CAPA

Mumbai: The government will need to pursue the divestment of Air India with even greater determination, else it may lead to its closure, aviation consultant CAPA India said in a report on Monday.

The report, Air India Privatisation Setback, added that if the government continues to own the airline, it will result in an indefinite drain on the exchequer, and the eventual closure of the airline may come at a greater cost to the employees, taxpayers and to the economy.

Since 2012, the government has pumped in $4 billion in Air India, and may have to infuse more, given that it is expected to lose $1.5-2 billion in FY19 and FY20, CAPA India said. Its debt currently stands at $7.5 billion.

The national carrier’s domestic as well as international market share is also fast depleting with rising competition from private airlines.

The finances of its no-frills subsidiary, Air India Express, too, are expected to deteriorate further. Other subsidiary units, such as ground handling, will also come under pressure, more so, as Air India does not have a long-term business plan, the report added.

“Over the last 12 months, since the divestment process was announced, the carrier has experienced a loss of direction, with no major strategic decisions being taken," it said.

“This will increase losses in the near-term at a cost to the taxpayer, while continued uncertainty about the airline’s future will also impact employee morale." It further said that turning Air India around from this position is neither practical nor feasible.

The Air India stake sale drew a blank with the government saying that it had not received any bids after the deadline for submitting expressions of interest ended on 31 May.

Most investors, who had shown interest, were wary of what the government’s role would be as it would continue to retain a 24% stake.

A ministerial panel entrusted with the divestment is expected to decide on the course of action in 10-14 days.

CAPA said the centre must take investor feedback to structure a more realistic offer, and try to complete the transaction in the this fiscal. Bold decisions will need to be taken at the very highest level to structure more attractive terms and conditions, it said.

“100% divestment will deliver a better outcome for all parties," the report said. “To ensure Air India remains focused on operational and financial performance while the divestment process continues, it should be placed under special administration, comprising a team of highly experienced and reputed professionals."

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