The debt that will transferred to the companies on sale will be linked to assets and will be sustainable level of debt, it should be debt linked to assets and sustainable level of debt, Jayant Sinha said. Photo: Ramesh Pathania/Mint
The debt that will transferred to the companies on sale will be linked to assets and will be sustainable level of debt, it should be debt linked to assets and sustainable level of debt, Jayant Sinha said. Photo: Ramesh Pathania/Mint

There’s very good logic in govt keeping some stake in Air India, says Jayant Sinha

The government expects Air India to become a thriving major airline in the private sector and it would then use the new value created to offset some debt, said Sinha

New Delhi: There is sound reason why the government should keep a small stake in Air India Ltd after its privatization, minister of state for aviation Jayant Sinha said.

The government has announced plans to hand over at least a 51% stake in the flag carrier to the private sector by December and hive off parts of the unsustainable debt of Rs50,000 crore in a separate vehicle. The government has already allowed local Indian players, together with foreign airlines, to bid for Air India.

“I think there is very good logic in government maintaining some stake. Remember that we will be absorbing the unsustainable debt — us as taxpayers," Sinha said at the CNBCTV18-Mint Budget Verdict conclave on Friday.

The government expects Air India to become a thriving major airline in the private sector and it would then use the new value created to offset some debt. “The notion would be that Air India is transferred to a successful and very capable private operator — they will be able to create tremendous value because this is a very attractive enterprise. So if we build an Indian Lufthansa, an Indian Emirates, an Indian British Airways that will be a very valuable company, (in) that valuable company we will be able to pay down some of the debt we will absorb so there is some logic to maintaining some residual stake," he explained.

The airline will be sold under four different entities for which interested parties will be allowed to bid separately — Air India’s domestic and international operations, besides Air India Express, Air India SATS will be clubbed together while the engineering arm, ground handling and Alliance Air will be separately sold. The debt will be placed in each of these four units.

“The debt that will transferred to the companies on sale will be linked to assets and will be sustainable level of debt—it should be debt linked to assets and sustainable level of debt," he said.

The last decade has seen Air India slip.

Air India clocked a small profit of Rs16.29 crore in 2005-06, while Indian Airlines posted a Rs49.50 crore profit. Both had a paltry equity base of about Rs105 crore and Rs153 crore, respectively. They had a combined debt of about Rs5,000 crore and there was no financial support from the government.

In 2007, the Congress-led United Progressive Alliance government decided to merge the two airlines and placed orders for planes worth more than Rs50,000 crore.

With the financial burden of 111 aircraft and working capital loans, the airline’s debt ballooned from Rs5,000 crore to Rs50,000 crore in 10 years.

To an audience question on who was responsible for the plight of the airline, Sinha replied, “It’s very sad and it’s a fair question to ask... However, that is the job of the investigating agencies and the investigative agencies are working on that. As the process unfolds we will find out who the perpetrators are. It was the Maharaja and we have made Maharaja a bhikari (beggar)."

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