January 10, 2018 TnH Global

CAPA: Postponing Air India disinvestment will erode its value

Postponing disinvestment of Air India by five years will further erode its value, says aviation think tank CAPA in response to a draft report by a Parliamentary panel recommending the government review its decision on the airline’s stake sale. The Parliamentary Standing Committee on Transport, Tourism and Culture in its draft report has said the government should look at alternative to disinvestment as it would not be appropriate to disinvest in the airline at a time when it has shown operational profits.

The draft report suggested the government should revisit its decision to privatise the national carrier at the end of the 10-year turnaround plan in 2022.

“Parliamentary panel recommending divestment of Air India be postponed by 5 years will further erode its value. CAPA estimates that the government would need to inject additional USD 2.5-3bn funding, and these may be conservative estimates,” said Kapil Kaul, Chief Executive, Centre for Asia Pacific Aviation (CAPA).

Privatisation of the Air India should in fact be “fast- tracked” to maximise investor interest and value for the government, CAPA added. The Union Cabinet last year gave its in-principle approval for the disinvestment of Air India and formed an inter-ministerial group to work on the strategy for the airline’s stake sale. The Air India has a debt of Rs 51,890 crore.

As part of a turnaround plan approved by the previous UPA dispensation, the airline was to receive a bailout package of up to Rs 30,231 crore for a period of 10 years, starting in 2012. In 2016-17, the airline had a net loss of Rs 3,643 crore, while the operating profit rose to Rs 215 crore, as per the provisional figures.

The thinktank has also made suggestions for the Air India’s disinvestment process and said the government must sell airline operations alone as part of the core disinvestment along with aircraft-related debt and reasonable working capital loans. Air India’s subsidiaries, CAPA says, should be sold off separately to raise capital that can be used to retire debt and that real estate and non-core assets should be placed in a separate Special Purpose Vehicle.

It also proposes that the government should exit from Air India completely and that foreign airlines should be allowed to participate in the bidding process by investing upto 49 per cent as per the FDI norms for the sector.

“No major Indian corporation from outside of aviation will invest in such a complex project without an experienced strategic partner. Allowing foreign airlines to participate will increase the number of interested bidders and the valuation,” the CAPA said in a press statement.

It also suggested that the Air India’s domestic and international operations should be offered together.