In a last-ditch effort to salvage Air India, a government panel on Tuesday decided to sell the national carrier’s ground handling arm and use the proceeds to pare its massive debt burden.

According to the plan, the government will hive off Air India Air Transport Services Ltd (AIATSL) into a special purpose vehicle (SPV) that will be directly owned by the government. Once the transfer is completed, expressions of interest in the unit will be invited, civil aviation secretary R.N. Choubey told reporters after the meeting of the group of ministers. The government expects to complete the sale by the end of this fiscal.

If the sale is successful, it will provide some relief for the government that is struggling to meet its 3.3% fiscal deficit target for the year. Although the money raised through the sale will be used to cut Air India’s debt, it will still help free up government resources that would otherwise have been used to fund the ailing carrier.

AIATSL is the largest ground handling company in India and is present in almost all airports across the country where the airline operates. The company has close to 80-85% share of the domestic and international ground handling business in India, according to Air India officials. It is also profitable.

Paying down part of Air India’s accumulated debt of over 48,000 crore, along with efficiency improvements, under a turnaround plan could also generate investor interest in the money-losing national carrier.

Choubey said the government is separately taking action for turning around Air India, but declined to give further details. An attempt to sell 76% of Air India, 100% of low-cost international carrier Air India Express Ltd and 50% of Air India SATS Airport Services Pvt. Ltd had failed to take off earlier this year because of Air India’s huge debt and the fact that the government chose to retain 24% in the carrier.

The ministerial panel that met on Tuesday also decided to go ahead with the sale of state-owned helicopter services firm Pawan Hans. Choubey said a request for proposals for the sale would be issued soon.

Choubey said the strategic sale of AIATSL is expected to be a success as it had received unsolicited offers from four-five investors earlier when the government had given an in-principle nod for sale of Air India and its subsidiaries. New Delhi-based private operator Bird Group, which provides ground-handling services at seven airports including Delhi, Mumbai, Bengaluru and Kochi, had at that time expressed interest in buying the Air India arm. However, at that time, the government did not want to sell the airline’s individual units separately.

“A significant part of Air India’s debt is being hived off to the SPV and the government is taking responsibility for that debt. When that much of debt is hived off into the SPV, the intention is that when the subsidiary (AIATSL) is sold, the sale proceeds should be used to retire the debt," said Choubey, adding that it would be a big relief for Air India. The buyer will not have to bear the debt being hived off to the SPV.

One uncertainty is the general elections likely to take place early next year, which could slow down the whole process, but officials are optimistic of getting the deal through soon. At the moment, the government is speaking to Air India’s lenders regarding transfer of the subsidiary as well as part of the national carrier’s debt.

“We are committed to pushing this process very fast," said Choubey.

Experts said that under the rigid administrative framework of the government, running an airline profitably is an impossible task, as aviation is a difficult sector, with very thin margins, and needs quick decision-making. “For any revival plan of Air India to succeed, the government has to completely exit from the management and control of the company," said Dhiraj Mathur, leader of defence and aerospace practice at PwC India.

Airport ground handling services include all the services an aircraft needs during the period it remains parked at the terminal. These include passenger baggage services, ramp services, cargo and mail services, load control and communication services. While some airlines receive these services from a ground handling service provider, others prefer to use their own equipment.

gireesh.p@livemint.com

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