The Indian government is planning to sell its struggling national carrier for $1 billion next year — a much lower price than it had initially hoped for
- The Indian
governmentis expecting to earn around $1 billion (₹70 billion) from the sale of Air Indiain the second half of 2019-2020.
- The figure is a far cry from the ₹125 billion valuation Air India was estimated to have in April last year.
- After repeated capital infusions, the government is desperate to cuts it losses.
The Indian government is expecting to earn around $1 billion (₹70 billion) from the sale, a measly sum considering that its land assets alone were valued at around ₹80 billion a few years ago. While the figure is a far cry from the ₹125 billion valuation Air India was estimated to have in April last year by the State Bank of India, a government-owned bank, it takes into account a few important realities.
Firstly, the government is desperate to cuts its losses and stop the bleeding from the exchequer. It has been making large infusions into Air India to keep it operational on a day-to-day basis, a tough ask given the former’s strained finances. In December 2018, the Indian Parliament approved a ₹23.5 billion investment into the airline, which came on the back of a ₹9.8 billion infusion in August.
According to the Public Enterprises Survey in 2017-18, the airline lost an average of ₹150 million on a daily basis last year, making it the second-largest loss making public-sector entity. It is expected to lose a further $2 billion by 2020.
The airline has debts of over ₹550 billion and a number of repayments are due in the immediate term. When it tried to sell a 76% stake in the airline last year, the government said the buyer would only inherit half of this debt. The government will have to repay or refinance a major portion of the airline’s debts in order to make it attractive to buyers. The finance ministry has even transferred ₹290 billion worth of debt to a separate holding company.
Secondly, the cost-cutting plan is proving harder than expected, evidenced by the airline’s continued inability to pay its employees. Rather than optimising processes and making operations more efficient, the government has focussed on selling off non-strategic assets like land holdings, buildings and various subsidiaries like its ground handling unit in order to pay down debts.
The cost-cutting measures that have been implemented seem largely inconsequential and are indicative of the government’s everything-and-the-kitchen-sink approach. In addition to scrapping non-vegetarian meals for economy passengers, the airline has reportedly been offering meals stocked in India for its return international flights in a bid to cut catering costs.
Thirdly, the outlook for India’s
A rebound in oil prices in 2019, along with saturated airport capacity, will drive costs further up. To make matters worse, Air India holds less than 13% of this market, having been muscled out by its private competitors. Clawing back its market share won’t be easy, especially given the fact that it won’t be able to increase its fleet as quickly as its rivals.
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