Air India’s debt needs resolving before stake sale

The Narendra Modi government, keen to pursue its reform agenda, is looking to undertake sweeping reforms of the national carrier Air India. Saddled with a debt of over Rs 50,000 crore, the government is learnt to be evaluating various options to decide the Maharaja’s future. While the NITI Aayog, in its recommendations to the government, has said that there are four key issues that need to be addressed; including a complete sale of the carrier; the government is yet to take a final call. Citing international examples like British Airways, Japan Airlines, and Austrian Air—where governments sold their entire stakes—the NITI Aayog has proposed the total privatisation of Air India in its report to the Prime Minister’s Office.

But sources say that the Prime Minister’s Office and Ministry of Finance officials are keen that a decisive plan should be charted out for the carrier, and privatising Air India is a view that has emerged strong among the many the Modi government is grappling with, regarding the future of the airline. Sources say, once a final decision to divest stakes in Air India is taken, a gradual stake sale is unlikely. The government is likely to cede control by either reducing its stake to below 49%, or completely exit the national carrier.

Finance Minister Arun Jaitley had recently said “In the domestic sector, already 86% of passengers are flying in private airlines. Whether it is 86% or 100%, it does not make a difference. Air India can continue to be a national carrier and somebody else pay for its management.”

Before a stake sale, Air India’s debt burden is the key issue that needs to be addressed since no investor would be willing to take over such a large debt pile. While to reduce its debt burden, Air India is looking to sell some of its real estate assets, it is also likely to begin a fresh round of talks with public sector banks to recast a part of its debt. But these efforts can only provide partial relief. The Modi government will have to take a tough call on writing off a large part of the debt.

On its part, the Modi government has been pumping money into the state run behemoth, in an effort to revive it. From August 2014 till March 2017, Rs 16,822 crore has been infused into Air India; but with no revival in sight, the government perhaps is now banking on an investor to bail it out of the Air India mess.

Air India is surviving on a Rs 30,231-crore nine-year bailout programme started in 2012 under the Manmohan Singh government and has accumulated losses of over Rs 50,000 crore. Private sector airlines, in comparison, have debt burdens such as Rs 7,223 crore for Jet Airways and Rs 3,201 crore for IndiGo.