Air India stake sale plan shelved, alternatives being worked on: government
21 June, 2018, 1:00 am
NEW DELHI, (Reuters) – India has shelved a plan to sell a 76 percent stake in ailing state-owned carrier Air India due to lack of interest from bidders and the airline is now reviewing its funding needs to remain competitive, a government official said on Wednesday.
The government is still committed to privatizing Air India and will review the sale process soon, Junior Civil Aviation Minister Jayant Sinha told reporters at a briefing in New Delhi, without giving a specific timeline for when a new plan is likely to be announced.
It will continue to support the loss-making airline’s financial requirements, Sinha said.
India last month failed to attract buyers for the government’s stake in the debt-laden carrier, in a blow to Prime Minister Narendra Modi’s credentials as a reformer willing to step away from running money-losing businesses ahead of an election next year.
“Government would probably wait for the right market conditions to proceed with the stake sale and probably in the meantime, they could look at offloading some of the non-core assets,” said Teresa John, economist at Nirmal Bang Institutional Equities, adding she does not expect the sale to happen before the election.
“Air India is a classic case where the sum of parts is more valuable than the whole entity. Individual suitors are interested in different parts of Air India and they should go for a part sale,” an industry source said on condition of anonymity.
The national carrier operates domestic and international flights, runs a low-cost airline and also has a ground-handling business.
Air India could not be reached for comment.
The decision to call off the sale is a highly disappointing reversal of the government’s earlier commitment to privatizing the national carrier, consultancy CAPA India said in a note.
“Under continued government ownership, with no clear roadmap, Air India is likely to see its domestic and international market shares decline over time to a point where the carrier is no longer relevant,” it said.
Air India has been losing domestic market share to rapidly expanding lower-cost operators like InterGlobe Aviation Ltd’s (INGL.NS) IndiGo and SpiceJet Ltd (SPJT.BO) that are now looking to expand their international routes.
Air India, which employs some 27,000 staff, said this month it was seeking a short-term loan of 10 billion rupees ($148 million) so it can continue day-to-day operations.
CAPA India estimated the carrier would make losses of $1.5 billion to $2 billion over the next two years alone, adding it represented an unnecessary drain on taxpayer funds in an industry that is well-served by private operators.
“There will be need for incremental funds but it is not clear if that will come from the government or external borrowing from banks,” said the industry source, adding that the airline would most likely have to take on more debt if it does not sell assets to raise money.
Selling the state carrier was key to Modi’s plans to help keep the fiscal deficit at 3.3 percent of GDP, a goal already under pressure from giveaways to farmers and other welfare benefits ahead of the 2019 national elections.