Every other day, there are reports that the government is tweaking the Air India sale terms in order to make it attractive for buyers.

However, in doing so, the government essentially appears to be treating the symptoms and not the disease. The main problem with the Air India sale is that nobody will be willing to buy it in its current form.

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As the saying goes, the way to eat an elephant is one bite at a time. Earlier this year, news reports had suggested that the government will split Air India into four parts and sell at least 51% in each of them. The four divisions were Air India and Air India Express, regional airline operations, ground handling operations and engineering operations.

The best thing to do now is to break the mammoth firm into sizeable portions for investors and put it up for grabs. The reason being, nobody has the appetite to buy the entire airline. InterGlobe Aviation Ltd (that runs IndiGo) has already stated it is primarily interested in the acquisition of Air India’s international operations and Air India Express.

Shannon Attari, partner and aviation restructuring expert at Attari Capital, reckons the government would be able to eke out the maximum value from breaking up the airline and selling each part separately. “Some segments such as the loyalty programme can enjoy higher valuations compared to the airline business," says Attari. A case in point is Air Canada that spun off its loyalty programme many years ago as part of its restructuring.

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“Financial investors could be interested in taking some pie of the non-airlines businesses. Companies such as Max Aerospace and Aviation Pvt. Ltd and Air Works India Engineering Pvt. Ltd may be interested in Air India’s maintenance, repair and overhaul segment. Lufthansa Technik, SR Technics may want to set up shop in India by leveraging the world class facility built by Boeing for Air India in Nagpur," he adds.

To be sure, the process will have to speed up now, as the operating environment has deteriorated substantially owing to higher crude oil prices. When better-run and profitable Indian airlines are already feeling the heat from rising oil prices, what hope is there for Air India?

Air India is expected to lose a total of $1.5-2 billion over the next two fiscal years, pointed out a CAPA India report on 4 June. “These losses will need to be funded by the Indian taxpayers. And this is in addition to the $4 billion of public funds that have been used to subsidise the airline since 2012," added the CAPA report.

It’s worth noting that crude oil prices are not expected to drop meaningfully over the medium term. For the government, the clock has already started ticking on this one.

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