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  • Writer's pictureSahastha

Air India Privatization and it’s implication

Updated: Oct 4, 2023

Air India, 1st Indian airline founded by J.R.D Tata as Tata airlines in 1932. But in 1953, the Central Government came up with the Air Corporations Act with the intention to merge and nationalize all existing airlines operating in our country. The act created two corporations- Indian Airlines and Air India International. Air India International handling all the international flights and its domestic services were transferred to the Indian Airlines.

History of Air India:

The airline plays a really important role in the history of the aviation sector until the 1990s, after which, Air India could not survive with the growing competition and other factors like increased oil price, poor management decisions etc.  Air India gradually lost its market shares and incurred losses.

The combined losses for Air India and Indian Airlines in 2006–07 were ₹7.7 billion and after the merger, it went up to ₹72 billion by March 2009. The government committed itself to infusing ₹42,182 crore of equity in 2011-12. However, the airline has not been able to achieve the targets set in the turnaround plan. The Economic Survey 2017 recommended that the government privatize Air India. The state-owned airline has a debt of about ₹50, 000 crores. In June 2017, the Government of India finally approved the privatization of Air India. In March 2018, ‘Expression of Interest’ was issued by the government in order to sell a 76% stake of Air India along with Air India Express, its subsidiary, and a 50% stake in AISATS. According to the terms of the EOI, the new owner had to accept the debt of ₹33,392 crores. The efforts of the government failed as no buyer showed interest in buying the debt-laden airline.

Why government made a decision about Air India privatization

Air India is operationally inefficient and unable to compete with private sector operators. It has been grossly mismanaged over the years. it has not been able to meet the operational targets. The company debt level was more than ₹60,000 crores at present.

The possibility of improvement in profitability is quite high. The aviation sector in India is experiencing tough competition because of the presence of private players who are more efficient because of their advanced technology. The government, on the other hand, does not have the resources to keep up with advanced technology. Thus, the privatization of Air India will ensure the technological upgradation of Air India. The airline has a domestic market share along with the international market share. The deal will bolster the buyer’s presence in the market. The airline serves domestic and international countries. It will be a major attraction for the buyer. Privatization will increase competition in the aviation market, which in turn will improve the quality of services in Air India.

It will not be easy for the government to privatize the debt-laden Air India. It will have to work with professionals and investment bankers to find ways and bring down the level of debt in the company.

What are the disadvantages:

If the airline is privatized, aviation will be the only sector in India where there will be no state ownership. This can lead to a private-enterprise monopoly, which can increase the flight fares and the government would be unable to interfere.

Air India has served the vital interest of the nation by flying out to non-profit-making destinations. Privatization may scrap such operations.

Privatization has severely affected the socially and economically weaker section of the society due to reservation policy, subsidies, and other benefits being denied.

Currently, Air India has employed more people considering industry standards. The new owner may not be upfront about the same and prefer cost-cutting, firing the unnecessary staff. lot of people are not in support of the same, considering its economic and social implications on the life of people, especially the person who is currently employed.

Current Status

Finance Minister Nirmala Sitharaman had said in her Budget speech that the privatization of Air India will complete in 2021-22. Apart from selling its 100 per cent stake in Air India that has been in losses since it merged with Indian Airlines in 2007, the government is also looking to offload its 50 per cent share in Air India Airport Services Pvt. Ltd. According to the terms of the EOI, the new owner had to accept the debt of ₹23000 crores only.

Central government is reportedly planning to invite financial bids for privatization of national carrier Air India by this March-end, could either allow potential bidders to value Air India purely on its assets or substantially reduce the ₹23,286 crore debt currently required to be absorbed by a successful bidder. The shortlisted entities might be given time till June or early July to furnish their financial bids. After the bids are locked, the stake sale will take another three months to finalize after evaluation of the bids. The plan is to wrap up the disinvestment process in the current calendar year.

Apart from Tata Sons, Spice Jet promoter Ajay Singh, in partnership with Ras Al Khaimah Investment Authority, and Ankur Bhatia, promoter of Delhi-based Bird group, has also emerged as bidders for the loss-making Air India. Both parties have placed bids in their capacities but they both could hold a majority stake in the airline if they get it.

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