The trends in airline privatisation around the world
The Indian government has decided to sell 76% stake in Air India. This is hardly the first time a government has sold a stake in a national airline and all the government has to do is learn from best practices. There’s no need to reinvent the wheel here.
The chart, extracted from an article on 23 January by the Capa Analyst team on centreforaviation.com website, shows the respective government stakes after several state-owned airlines governments saw government stake sales.
What are the trends?
“Perhaps the region that has successfully carried the highest number of airline privatisations is Europe,” points out Capa, adding that almost every major Western European national airline has been privatized. The government, however, has retained stakes in Finnair, TAP Portugal, SAS and Air France-KLM.
Western European privatisations tended to follow the IPO (initial public offering) route. The UK government’s privatisation of British Airways (BA) in 1987 is a case in point. Colin Marshall, hired in 1983 as CEO of BA played a vital role in reforming the airline before it was sold.
In Eastern/Central Europe, most national airlines remain state-controlled, even as several are seeking private sector investors.
Outside Europe, the airline privatisation process has met with mixed results, says Capa. Australia’s 1995 sale of Qantas is one of the more successful examples.
The 1992 announcement of BA as a trade investor in a 25% stake was followed by an IPO of the remaining 75% stake in Qantas that the Australian government held. BA sold its stake in 2004. Qantas’s privatisation was a combination of two approaches—stake sale to a strategic investor and an IPO.
“Japan Airlines was originally privatised in 1987, but its more recent history revealed the ongoing watchful eye of the state, which bailed out the airline following its 2010 bankruptcy. In the subsequent 2011 listing of JAL, the government recouped the bailout cost,” added Capa.
What are the key learnings then? “There is no ‘one size fits all’ solution when it comes to airline privatization,” said the Capa article, adding that IPOs have worked well for larger airlines, while those needing more active support from a partner have fared better through a trade sale.
In general, however, two requirements for a successful privatisation are a track record of profitability and no government interference in the running of the airline, concludes Capa.