February 7, 2017 TnH Global

Banks may become strategic investors in Air India; listing on the cards

The Modi government’s plan for Air India envisages better, professional management, and a listing—but not divestment!

Air India has so far received Rs23,993 crore of the Rs30,231 crore equity infusion promised by the government under a financial restructuring plan in 2012. “If all goes well, banks will become Air India’s strategic investors,” the first official said.

The government is considering a proposal to make banks strategic investors in Air India, followed by a listing of the national airline, two people familiar with the plan said, asking not to be identified. Privatization of the airline isn’t on the cards, they added. The plan is part of another attempt to turn around the airline. As the first step of this plan, the government will continue efforts to recast Rs28,000 crore of working capital debt that Air India owes a consortium of 19 banks led by the State Bank of India. The lenders are being asked to convert this into equity.

In the second stage, the government plans to induct professionals with proven financial and strategic management skills into the airline, the two people added. The induction of such professionals has been a recurring theme at Air India, and it hasn’t always worked well, but the thinking is that it will work along with the working capital debt restructuring. In the third stage, the government will consider listing the airline, the two people said.

“This is the most feasible plan (for Air India’s recovery) at the moment and it should get crystallized soon,” said one of the two people quoted above.

Air India, with a fleet of 140 controls nearly 15% of the domestic market and at 17% has the single largest share of international traffic into and out of India. It has total debt of over Rs50,000 crore. Air India chairman Ashwani Lohani and SBI chairman Arundhati Bhattacharya have already met twice to discuss the plan, the two people said. However, the banks, already saddled with bad debts, are proceeding with caution, they added.

The banks would like Air India to work to a plan that is “sustainable” and also where value can be unlocked along the way, one of the two said. That is where the induction of professionals and the plan for a listing should help. What will also help is the fact that the airline has already shortlisted three consulting firms including McKinsey & Co to streamline its processes and plan its network.

Privatization

At a presentation made by aviation ministry officials on the aviation policy over a year back, Prime Minister Narendra Modi asked them to skip the slide on privatization of Air India and focus on regional aviation, according to the first official. A third government official who spoke on condition of anonymity confirmed this.

There is “no point in demoralising the firm” the first official added. Air India, he pointed out, has not seen a strike by workers in five years, something previously unheard of in the airline. The thinking in government circles also seems to be that with privatisation out of the equation, the union will go along with efforts to restructure and turn around the airline.

Civil aviation secretary R.N. Choubey was reluctant to even discuss privatisation of Air India. “No, no, that is not on,” he said. “All I can say is privatization of Air India is not on the table, not on the cards.”

Air India’s troubles cab be traced back to the second half of the 2000s when a botched merger with Indian Airlines and some ill-timed fleet expansion initiatives, coupled with competition from better-run private airlines resulted in its losses soaring.

The airline reported a loss of about Rs3,587 crore in 2015-16 compared with a loss of Rs5,859 crore in the previous year. Air India has so far received Rs23,993 crore of the Rs30,231 crore equity infusion promised by the government under a financial restructuring plan in 2012.

News Source: www.livemint.com