Air India may be listed on exchanges with banks holding strategic stake

New Delhi: The government is considering inducting banks as strategic investors in Air India, followed by a listing of the national airline, said two persons familiar with the plan.

Privatization of the airline isn’t on the cards, said the two, who requested anonymity.

The plan is part of another attempt to turn around the airline.

In the first step, the government will continue efforts to recast Rs28,000 crore of working capital debt that Air India owes a consortium of 19 banks led by State Bank of India (SBI). The lenders are being asked to convert this debt into equity.

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SBI declined to comment on the matter.

This effort, initiated last year, and first reported by the Economic Times last September, is still a work in progress.

In the second stage, the government plans to induct professionals with proven financial and strategic management skills into the airline, added the two people. The induction of such professionals has been a recurring theme at Air India, and it hasn’t always worked well, but the thinking is that it will be feasible alongside the working capital debt restructuring.

In the third stage, the government will consider listing the airline, the two people said.

“This is the most feasible plan (for Air India’s recovery) at the moment and it should get crystallized soon,” said one of the two.

Air India, with a fleet of 140 planes, controls nearly 15% of the domestic market and at 17% has the single largest share of international traffic into and out of India.

It has total debt of over Rs50,000 crore.

Air India chairman Ashwani Lohani and SBI chairman Arundhati Bhattacharya have already met twice to discuss the plan, the two people said.

However, the banks, already saddled with bad debts, are proceeding with caution, they added.

The banks would like Air India to work to a plan that is “sustainable” and also where value can be unlocked along the way, said the first person cited above. That is where the induction of professionals and the plan for a listing should help. What will also help is the fact that Air India has already shortlisted three consulting firms, including McKinsey and Co., to streamline its processes and plan its network. Mint reported this on 31 January.

“If all goes well, banks will become Air India’s strategic investors,” the first person said.

At a presentation made by ministry officials on the aviation policy over a year ago, Prime Minister Narendra Modi asked them to skip the slide on privatization of Air India and focus on regional aviation, according to the first person. A third government official who spoke on condition of anonymity confirmed this.

There is “no point in demoralizing the firm”, the first official added. Air India, he pointed out, has not seen a strike by workers in five years—something previously unheard of at the airline.

The thinking in government also seems to be that with privatization out of the equation, the union will go along with efforts to restructure and turn around the airline.

Civil aviation secretary R.N. Choubey was reluctant to even discuss privatization of Air India. “No, no, that is not on,” he said. “All I can say is privatization of Air India is not on the table, not on the cards.”

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Air India’s troubles can be traced back to the second half of the 2000s when a botched merger with Indian Airlines and some ill-timed fleet expansion initiatives, coupled with competition from better-run private airlines, resulted in its losses soaring.

The airline reported a loss of about Rs3,587 crore in 2015-16 compared with a loss of Rs5,859 crore in the previous year. Air India has so far received Rs23,993 crore of the Rs30,231 crore equity infusion promised by the government under a financial restructuring plan in 2012.

An analyst said unless Air India gets full autonomy, not much will change.

“The question is what kind of autonomy we are going to provide to Air India; is it still going to be run by the aviation ministry? Then how do you expect a professional to turn around the organization?” asked Harsh Vardhan, a former head of the erstwhile regional airline Vayudoot.