• The government said that it has now decided to divest a 100% stake in Air India, unlike the previous attempt, where it had decided to retain a 24% stake.



  • Tata Sons set up Tata Airlines in 1932. 
  • In 1946, Tata Airlines became a public company and was renamed Air India.
  • 2007: Air India merged with the erstwhile Indian Airlines based on the recommendations of Justice Dharmadhikari committee report. A new company called the National Aviation Company of India Limited (now called Air India Limited) was established, into which both Air India and Indian Airlines were merged.
    • Reason for merger: The Central government felt that it would make better business sense to merge the two airlines. It could help achieve economies of scale in maintenance, ground operations, use of landing slots and parking rights.
    • A failed merger: Because IA and AI were organisations with complex layers of departments run in obsolete bureaucratic ways, the merger was not successful.
  • In 2001, the government made an attempt to privatise the airline by putting it up for sale. A consortium led by the Tata group and Singapore Airlines made a bid for it, but the deal fell through.
  • In 2004, it was decided that Air India would boost its passenger traffic by adding more routes and services. An order was placed for 50 aircraft at a cost of Rs.50,000 crore. 
  • In 2006, an additional order for 60 narrow-bodied aircraft was placed. There was still no viable plan, and so the new fleet of aircraft was useless. It eventually had to scrap routes such as Mumbai-San Francisco to cut back on expenses.
    • Criticism: The decision to acquire a large number of aircraft in excess of Rs 50,000 crore unleashed a pile of debt from which Air India has never recovered.
  • 10-year Restructuring Plan for Air India (2012-2022): Under a financial restructuring plan in 2012, Air India was slated to receive Rs 30,231 crore equity infusion over 10 years. It has received some Rs 23,993 crore so far. Even after pumping in huge money, the airline has not shown significant financial and operational improvement.
  • In 2017, the Cabinet approved strategic disinvestment in five of Air India’s subsidiaries — its MRO unit Air India Engineering Services (AIESL), ground handling arm Air India Transport Services, Air India Charters which operates Air India Express and Airline Allied Services which operates Alliance Air and Hotel Corporation of India (which owns Centaur Hotels), along with a joint venture AISATS.
  • In 2018, the central government offered to sell: 76% of its stake in Air India & 50 % of share of low-cost subsidiary Air India Express in ground-handling arm AISATS as a single entity. But it failed.
  • In 2018/19, the carrier posted net loss of Rs 8,400 crore. Recently, the Supreme Court has referred the matter to the National Company Law Tribunal (NCLT) after an employee threatened to initiate bankruptcy proceedings against Air India in case the arrears are not cleared.
  • In 2018, the Niti Aayog had submitted recommendations on the strategic disinvestment of Air India and five of its subsidiaries, citing the carrier’s monthly losses to the tune of Rs 200-250 crore as the primary reason why such a move is required.
  • Four-members GoM (group of ministers) is now working out on modalities for stake sale.
  • The Minister of Civil Aviation, along with the DIPAM (department of investment and public asset management) are tasked to prepare EoI for selling the national carrier.

Reasons for disinvestment

These include high labor cost and low productivity, an obsolete work culture, weak leadership, a non-performing board and ministerial interference in day-to-day affairs. Lack of expertise is another key factor.

  • No profit: Air India has not registered profit since over a decade after the merger of the erstwhile Indian Airlines (domestic operations) with Air India (international operations) in 2007. 
  • Debt of ₹52,000 crore:  It is tottering under a mountain of debt and is surviving on doles from the government.
  • Poor performance: Air India’s market share has also eroded rapidly over the years due to competition from private players — from 19.4% in 2013 to around 13.3% in May 2017. The airline lags behind most Indian domestic airlines when compared on the basis of their cancellations (2.6%), on-time performance (53.5%) or airline load factor (80.9%)
  • Mismanagement: The airline has been grossly mismanaged over the years and controversial decisions have been taken.
  • Too many employees: AI has 26,978 employees (including permanent, contractual, casual, and on-deputation staff) for a fleet of 115 aircraft — or 234 employees per aircraft.
  • Corruption: The CBI has initiated investigations into key decisions made on Air India including the merger of Air India and Indian Airlines, purchase of 111 aircraft by the national carrier and giving away of profitable routes to rival airlines.
  • Failure of  2012 turnaround plan:  As per the Comptroller and Auditor General of India, compared with the target of raising Rs 500 crore annually through monetization of assets in the four-year period from 2012-13 to 2015-16, the company managed to raise only Rs64.06 crore.
  • Market economy: The government should not be in the business of providing goods and services where the private sector has a vibrant presence. 
  • Opportunity cost: It has been elaborated by the 14th Finance Commission, the opportunity cost of such investments should be considered. The government has fiscal constraints and needs to spend more in important areas such as health and education.
  • Disinvestment target: The target for disinvestment receipts has increased to Rs 1.05 trillion for FY20, from Rs 90,000 crore in the interim Budget presented in February.

Issues with previous bidding

  • InterGlobe Aviation Ltd, was interested in the acquisition of Air India’s international operations and Air India Express. Given that this option was not available last year, InterGlobe had decided not to pursue the sale.
  • The 24% problem:  The govt. drew a blank in its earlier attempt last year to disinvest 76% in as there was prospect of political interference on strategic and day-to-day matters as a result of the government’s retention of a 24 per cent shareholding.

Possible benefits of privatization of Air India

  • Investor sentiments: Divesting the loss-making Air India will send a strong signal to investors that India is serious about reforms and is no longer willing to throw good money after bad. 
  • Paving the way for disinvestment of other loss-making companies: Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL). Are not  able to compete in India’s hyper-competitive telecom market.
  • Tourism sector: Airlines are an ‘upstream’ industry that a lot of businesses and industries depend on. Compared to the 150 or so international destinations that Qatar and Emirates fly to, AI flies to a mere 37 international destinations. For international operations, one needs bilateral rights of India, and Air India has plenty of them.
  • Private sector:  It will release valuable landing spots in key airports for private airlines.
  • Social sector: The money can be diverted to the social sector schemes.

How the government can proceed?

  • Excluding debt: The government may exclude $7 billion of Air India’s $11 billion (or ₹78,100 crore) debt to attract buyers. It will have to bring down the level of debt in the company. This can possibly be done by selling non-core assets.
  • Piecemeal approach: Air India sale can be successful if the airline is broken down in three broad pieces: 1) international operations, 2) express services, which they do locally, and 3) ground handing and catering services.
  • Equity capital: The government can infuse equity capital one last time to bring down the debt and make it attractive for potential buyers. If the financial institutions are willing, a part of the debt can be converted into equity.
  • Setting up of a special purpose vehicle (SPV) to transfer some loans of the national carrier and its four subsidiaries.
  • Selling minority stake: The government could also choose to start by selling a minority stake in the company and bring in a professional management.

Arguments against privatizing Air India

  • Interests of employees: There will be a huge number of job losses.
  • Social obligations: the public sector undertakings (PSUs) have some social obligations as well apart from profit motives.
  • India needs a national airline: Airlines are the means of public transport where competition may endanger the lives of people by compromising on safety

Challenges in privatizing Air India

  • $4 billion question—the amount of debt the buyer of the airline will reportedly be saddled with. Returning the carrier to profitability is likely to take at least 2-3 years, during which time the new owner will have to absorb a couple of billion dollars of losses.
  • Issues related to current employees, their health cover, how many would remain and what would happen, securing a favourable deal for all employees.
  • Restructuring: The successful bidder will have to plough significant funds into enterprise-wide restructuring, requiring capital expenditure in enhanced products and services, as well as fleet expansion. 

Way forward

Global examples:

  • Qantas, which recently effected a successful turnaround, was provided a strong leader who excelled in ‘faster with decisions, productive with assets, and economical with costs.’
  • The German National Carrier Lufthanahnsa was privatized by hiving off Lufthansa Technik from Lufthansa Airlines.
  • All depends in what avatar the govt. will sell it and how much debt it will put on the books.
  • The acquirer would need to bring a significant amount of operational improvement to generate value from the transaction.
  • A piecemeal approach will result in better overall interest and demand.
  • Reviving the sick airlines industry: There is a need for comprehensive civil aviation reforms as many other airlines are reeling under the distress.
  • Fuel prices: India is a price-sensitive market. If the fuel price is low, airlines can make money even at current revenue levels. The first step will be to lower the prices of Jet fuel which is 35-40% more expensive in India than in the rest of the world, because of relatively high tax rates.
  • Easing regulations: The government can also reduce cumbersome regulation like route dispersal guidelines (RDG) that results in overcapacity in certain markets with a more comprehensive demand-supply and auction-driven regional connectivity scheme.