How Air India Sale Can Spur Govt’s Divestment Agenda

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By moderator July 9, 2019 14:13

The government plans to sell Air India to a strategic investor this fiscal. Such a sale of a state-owned unlisted company could give a fillip to the government’s divestment agenda and spur stock markets in India.

Reason for sale

  • Air India paid an interest of ₹4,155.68 crore on its 2017-18 debt of ₹55,305.82 crore at the end of March. 
  • The airline’s consolidated net loss was ₹5,761.02 crore, which followed a loss of ₹7,034.18 crore in the previous year. 
  • These operations are unsustainable as the government is hard-pressed to fund its social welfare schemes

Case of Air India disinvestment

    • Plan to sell Air India different from other divestment’s of state-owned companies

 

  • Last year, the government attempted to sell up to 76% stake in the airline but did not receive any bids. Experience from previous strategic sales indicates that the acquirer is not happy to have the government retain a stake in the company and have its nominee sitting on the board.
  • The government wants to sell Air India to a strategic investor, which means it will sell to someone interested in running the airline. 
    • A strategic divestment of a PSU, where the government is directly a majority owner, to a private party hasn’t happened in more than 15 years.
    • Most of the major government divestment’s in its firms in the last 20 years have taken place through IPOs or an offer for sale of an already listed firm. 
      • Such sales are politically safe as the government retains majority control, letting it appoint the management and also manage the optics. 
  • The sale of Air India will send the message that the government is serious about existing companies it has no business running. This could give it the experience and confidence to carry out more such sales.
  • Centre aims to garner ₹1.05 trillion from the sale of its shares in PSUs this fiscal. Air India sale could be a significant contributor to the targeted kitty.

Challenges in the sale of Air India

  • The Centre allows 100% FDI in airline firms, but foreign carriers can hold only up to 49%. But few business houses and banks in India have the cash to fund an acquisition of Air India’s size
    • The sale could thus trigger changes in FDI norms and give a fillip to the Centre’s Divestment Agenda.

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moderator
By moderator July 9, 2019 14:13