Rajiv Kumar, vice chairman , NITI Aayog.
Rajiv Kumar, vice chairman , NITI Aayog.

Air India should be made profitable before it’s privatized: NITI Aayog

The suggestion comes at a time when the government is keeping the carrier afloat with doses of capital infusion after a failed attempt at privatization in May

New Delhi: State-run Air India Ltd should be made profitable before it is privatized so that the government can fetch a better value for the loss-making national carrier, said the vice-chairman of federal policy think tank NITI Aayog Rajiv Kumar.

The suggestion comes at a time when the government is keeping the carrier afloat with doses of capital infusion after a failed attempt at privatization in May highlighted investors’ discomfort with the sale conditions and their aversion to buying a loss-making company at a time of high jet fuel prices.

Kumar said there could be two approaches to disinvestment in loss-making state-owned enterprises. The first is to turn around the company with professional management so that its valuation increases.

Air India has several assets whose value has not yet been discovered due to the company’s distressed financial situation. Kumar said the government should bring in a professional board that can run the carrier competitively before it decides to dispose the assets. “That is how these assets will fetch maximum value. This approach may very well be tried on Air India," he added.

Air India had accumulated debt of 48,781 crore at the end of financial year 2016-17. Although loss-making, its net losses before exceptional and extraordinary items have been steadily narrowing in the four years until FY17, according to company documents.

The second approach is to actively disinvest, may be in small portions at a time, or even better to get a strategic investor. “Basically, the government is cutting its losses (in this case)," said Kumar.

NITI Aayog had earlier assessed that continued financial support to Air India in a mature and competitive aviation market was not the best use of the state’s scarce resources.

However, another attempt at selling Air India in the current form at a throwaway price could become a politically thorny issue for the National Democratic Alliance government in its final year in office.

The government may have to prepare a plan to deal with issues concerning Air India’s large workforce ahead of a potential disinvestment.

“Tackling the huge employee cost without precipitating a labour unrest will be one of the challenges in turning around Air India," said Manoj Kumar, partner at law firm Corporate Professionals.

The civil aviation ministry is of the view that globally airlines have improved their performance once they are privatised.

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