October 28, 2021

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Ta Ta, Maharajah: Pragmatism has allowed Air India’s disinvestment to take off

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Uday Deb
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Finally, the drawn-out strategic disinvestment of Air India appears likely to happen. The government announced this week that it has received multiple expressions of interest for the airline and will now take the transaction to the next stage. The last attempt to disinvest in 2018 ended without the government receiving a single bid. Media reports indicate that the potential bidders include some employees of the airline and the Tata group. For the Tatas, Air India has a sentimental attachment. The airline emerged out of Tata Airlines which was set up in 1932. It was renamed Air India in 1946.

Air India has no place in the government’s portfolio. It has been mismanaged. Consequently, its consistent losses have been a drain on the exchequer. It needs to be sold at the earliest and the money redeployed in more relevant areas. Selling it has not been easy because of the consequences of years of losses. The debt at the end of 2018-19 was Rs 58,256 crore. The pandemic has had a particularly severe impact on the aviation industry and in the April-June quarter Air India’s net loss was Rs 2,570 crore.

The current round of disinvestment has been redeemed by some practical steps the government took. One, this time the aim is to sell the entire stake in the airline and its subsidiary Air India Express. Also, on sale is 50% shareholding in Air India SATS Airport Services. Two, the government has allowed potential bidders to account for the debt in their valuation of the business. Three, in order to prepare Air India for strategic disinvestment a debt of Rs 29,464 crore was allowed to be transferred to a special purpose vehicle. These steps have likely played a role in attracting bids on this occasion. It’s important that pragmatism guides the next stage.

The disinvestment exercise also foregrounds the irrationality of ownership laws in civil aviation. Foreign investment in Air India, including that of foreign airlines, is not to exceed 49%. The relevant legislation also says that substantial ownership and effective control shall continue to remain with Indian nationals. These laws deprive aviation and Air India of a wider pool of capital and management expertise. India is the loser here. It makes no sense to be suspicious of foreign ownership and managerial expertise in civil aviation. We cannot afford to be insular. India should be open to the world for business.

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This piece appeared as an editorial opinion in the print edition of The Times of India.

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Disclaimer

Views expressed above are the author’s own.

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