Running a commercial airline is an expensive business, requiring buying of aeroplanes, the cost of aviation fuel, which is outside the company’s control, and trained manpower. Air India, over the years, has accumulated debt-cum-losses of over Rs. 50,000 crores, and selling of it would levitate the stress on government’s finances.
The proposal of disinvestment into Air India got a cabinet approval in last June. The government had floated an Expression of Interest document, asking the potential buyers to bid for a 76% stake in Air India, 100% stake in Air India Express, and 50% stake in its ground handling subsidiary company. These companies together have liabilities of around 54,000 crores, out of which the new buyer will have to take on Rs 33,392 crore of the debt as a part of the deal.
Industry experts say that government’s decision to hold 24% stake in the airline was a major reason for the absence of any bidders. The new buyer would be taking a significant part of the debt, and overhauling the operations of the airline to curb losses would require massive restructuring which would be difficult with the government holding a stake.
Kapil Kaul, CEO(South Asia) of aviation consultancy firm CAPA, says that next steps to attract bidders should include a complete restructuring of Air India under a special administration, followed by 100 per cent divestment by the government with less complex terms. India's largest airline, Indigo, had also mentioned that it would not bid if the government remains in the picture.
The proponents of privatisation say that according to the established norms of the economy, a government should not be in the business of providing goods and services where the private sector has a good presence. On the other hand, the opponents, in one of their arguments, say that no public interest would be served if Air India is privatised.