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Politics keeps Air India afloat

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February 1st 2019

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After India’s government failed to sell 76% of debt-laden Air India group last May, the national government has decided to launch a strategic disinvestment strategy for the airline company that is aimed at raising US$1 billion. Read More »

Last year buyers were put off from making bids for the airline group because of its huge continuing losses, a multi-billion debt and a sale package that compulsorily included the purchase of all Air India subsidiaries as well as the mainline carrier.

In November, a ministerial panel headed by Finance Minister, Arun Jaitley, approved the transfer of $4.3 billion of the airline group’s debt to a special purpose vehicle (SPV), the Air India Asset Holding Company.

Earlier in the year, the finance minister injected US$150 million into Air India to support a “turnaround plan”. Last month, politicians approved an second equity infusion of $352.5 million to keep the group in business.

Air India’s ground handling subsidiary, Air India Air Transport Services, is up for sale and plans are proceeding for the sale of Air India Engineering Services.

If sold, the proceeds from the sale of the ground handling and engineering subsidiaries will go to the SPV to bring down the carrier’s debt and make the carrier more attractive to potential investors. Air India has been losing money since it absorbed domestic carrier, Indian Airlnies, into its operations almost 12 years ago.

India’s civil aviation minister, Suresh Prabhu, said last month that future revenue from the airline could not service its “massive debt”. This legacy issue must be segregated from the current challenges at the airline, he told an aviation conference.

“If you feel that future revenues can actually service the debt, that is not possible for the simple reason that the debt is so massive,” he said. “We are proactively working [on the debt issue] with the Finance Ministry to make it happen.

“We have prepared a plan. We are trying to professionalise the entire management of Air India right from the CEO so that there is a proper management structure that can take the airline to new heights.” At press time, Air India reported a four per cent increase in passengers carried for the quarter ended December 31, last year with revenue up 23% from improved aircraft utilization.

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