Govt working on Air India's debt issue to make it more attractive to buyers

The government is working on the debt issue of national carrier Air India to make it more attractive to buyers, a top official said on Monday.

Civil Aviation secretary Pradeep Singh Kharola indicated that the government's decision to retain partial stake in the national carrier coupled with huge debt prevented potential investors to bid for the debt-ridden airline.

"We made an attempt last year. We learnt a few lessons and we are trying to work on that and improve at this point in time. The major lesson was that time we said that only 76 per cent of Air India will be disinvested and rest 24 per cent will be retained by the government.

"However the feedback we got was people were not much interested and they wanted 100 per cent disinvestment so this time its is 100 per cent," Kharola said at the India Economic Conclave 2019 here.

The second and the most important learning of the bid process was regarding Air India's accumulated huge amount of debt, which was retained by saleable part of the airline and was parked in the special purpose vehicle.

"However, investors thought that the amount of debt retained by the carrier was not going to sustain so we are working on that also. We will see to it that the debt being parked with Air India is such that any bidder will be able to make it sustainable and if he feels that he can invest and improve profitably," Kharola added.

He also said the government has been discussing the issue of substantial ownership and effective control, saying each country says that if you want to operate from the same country, then substantial ownership will lie with the national (partner).

Kharola further said that the 20 per cent decline in capacity due to the grounding of Jet Airways in April this year has been compensated fully after the induction of aircraft by operators and it is now more than that before the airline stopped operations.

"Because of some problem one of the airlines had to suspend operations and almost 20 per cent of our capacity disappeared. In spite of that if we look back and see the number of aircraft flying before that airline stopped its operations and number of aircraft flying now there is growth of almost 5-6 per cent which means the industry has not only wiped out the gap or the vacuum created but it has also added on to capacity," he said.

Kharola also said that If the country has to grow in double-digits, some sectors will have to grow in double digits as well. "If we see aviation, it is one sector which has established and proved that it has the potential to grow double digits," he said.

The domestic aviation market has grown at a cumulative rate of 16 per cent in the last 4-5 years and that's where the answer to growth lies, he said. "This year the aviation sector has proved its resilience."

The domestic air traffic returned to double-digit growth in November at 11.6 per cent after clocking single digit till October with April traffic growth in negative territory.

Stating that the number of operational airports was likely to double in the next five years from 100 now, Kharola said, "That will need a multi-pronged approach the most important being enlightening the private sector to invite in airport projects and the response (so far) has been extremely good."

Around 600 aircraft flying at present and in the next five years the number is going to be double, therefore the government is trying to make policy interventions to create a congenial atmosphere so that this doubling of airplanes does take place, he said.

Noting that the viability of airlines is important and he said the government is trying to address the issue which can be done in various ways.

"One is on the cost side. On that we are working on lease financing. Majority of aircraft operators are lease financed and unfortunately almost all of these are lease financed from overseas. ... we are working on it so it can be done in India. At the same time, we are also working towards making India theO hub," Kharola added.