A-I, IA sell off in two years

The government is expected to divest up to 10 per cent in the two state-run carriers""Air India and Indian Airlines ""over the next two years to fund their fleet expansion. The divestment is expected to be on the same lines as that of National Thermal Power Corporation, officials said.

The government wanted to reduce the dependence of the two carriers on debt financing for its fleet and expansion plan, senior officials said. The move comes at a time when the Centre has allowed domestic private carriers to fly on international routes. The Congress-led UPA Government first talked about divesting stake in the two carriers in November last year.

"We need to finance the growth of the two carriers. How long can we depend on debt financing? We will have to dilute stake in them in the long term," Union Civil Aviation Minister Praful Patel had said then. However, it is not sure how much the government expects to raise from the sale of its stake in the two airlines.

The divestment move is likely to come in for stiff opposition from the Left parties. The Left had agreed to the government proposal to raise the cap on FDI in domestic airlines to 49 per cent from 40 per cent on the condition that the two state-run carriers will be kept outside the purview of the divestment policy.

The government is of the view that depending on debt to fund fleet acquisition plans of the two carriers will not be advisable as it would lead to a disproportionate debt-equity ratio on the balance sheet.

Indian Airlines and Air India plans to buy about 100 aircraft over the next few years. The government has approved Indian Airlines proposal to acquire 43 aircraft for Rs 9,475 crore, while Air India's plans to buy 50 aircraft, more than double its existing fleet of 34, is awaiting approval.

It is estimated that the two carriers would require about Rs 25,000 crore to replenish their fleet. Compared to this, the current combined equity base of the two airlines is about Rs 750 crore.

As per the government's calculations, about 10 per cent of the funds required were to be supported by the Centre, while the remaining was to be raised through various sources of financing. The government has also agreed to give sovereign guarantee to the carriers to raise funds from international institutions.

This is the second foray into disinvestment of the state-run airlines. In 1996, the government had decided to divest up to a 49 per cent equity in Indian Airlines and had shortlisted the consortium of Tata Sons and Singapore Airlines as the potential buyers. However, the process was called off at the last minute.

---

Divestment dips

Aborted bid
In 1996, a move to divest 49 per cent equity in Indian Airlines to Tata Sons and Singapore Airlines was called off at the last minute

Left roadblock
The Left had agreed to raising FDI cap to 49 per cent on the condition that the two carriers won't be divested

Equity-debt compulsion
The two carriers require about Rs 25,000 crore to replenish their fleets and have a combined equity base of about Rs 750 crore