The government of India on Wednesday approved the privatization of debt-ridden Air India and its five subsidiaries in a Cabinet meeting, the move is being called as one of the government's boldest reform moves.
Indian Finance Minister, Arun Jaitley said: “in-principle approval” for Air India's divestment had been secured and now a panel headed by him would decide modalities of the sale.
The Cabinet approval to for disinvestment followed the proposal presented by the Civil Aviation Ministry. The decision was taken after the government observed that the airlines could serve better in the hands of private companies.
The airline is under a debt of more than Rs 52,000 and is currently flying on a Rs 30,000 crore bailout package by the former government under the UPA in 2012.
"How much will be disinvested, by which process, its assets and debt, as also its hotel companies, will be deliberated," said the Mr. Jaitely. A panel will further decide whether to go for 100% stake sale in one go or divest gradually.
A panel will decide whether to go for 100% stake sale in one go or divest gradually.
The options given by the Department of investment and public asset management are 100%, 74%, and 51% stake sale in Air India.
"Air India-specific alternative mechanism" headed by 'Finance Minister' will decide who can bid for the airline company. The department will see whether foreign airlines in a joint venture with Indian or foreign partners should be allowed to buy the airline company.
According to current 'Foreign Direct Investment' (FDI) rules, foreign entities can invest in Indian airlines, but puts a cap 49% ownership cap.
The Tata Group is seen as a potential bidder for Air India, but it had unsuccessfully bid along with Singapore Airlines more than a decade back during Vajpayee government.
Sources said that the panel will also take a decision on the treatment of Air India's unsustainable debt, giving off certain assets to another company, demerger and strategic disinvestment of three profit-making subsidiaries.
AI Engineering Services Ltd, ground handling arm AI Transport Services Ltd, Alliance Air, and the low-cost AI Express. The fifth subsidiary, Hotel Corporation of India, runs Centaur Hotels and is AI's 50:50 JV with SATS Ltd of Singapore.
The panel will decide to make Air India attractive enough for bidders, with its debt of Rs 52,000 crore.
Currently, Air India has more than 110 aircraft in its fleet, including 43 wide-body aircraft, and flies to 41 international and 72 domestic destinations.
The Indian government led by BJP feels that instead of pumping in thousands of crore rupees into the airline, Air India should be sold to private entities and the money saved thus be used in the social sector.
Air India employees about 12,000 workers and the subsidiaries have more than 19,000. While the pilots' union says it is not opposed to privatization, other employee unions are concerned of the divestment.
The government says the future of the employees will be protected in the divestment process.