News Backgrounder
Indebted Air India in sell-off
February 1st 2018
Debt-ridden Indian airline group, Air India, will be restructured as four separate businesses with the intention of selling up to 51% of each of the new entities by year end, the government owners have announced. Read More »
The core airline businesses of Air India (AI) and low-cost carrier, Air India Express, will be offered as one company but the ground handling, MRO and regional domestic units will be sold separately.
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In a move intended to achieve a sale, the Indian prime minister, Narendra Modi, announced that foreign airlines could buy up to 49% of the flag carrier. Previously, they could invest in domestic Indian airlines but not Air India. The rules of sale, to date, require that Air India retains management control. However, media reports have said the government would be happy with 26% of the group if and when it is sold.
With estimated debts of US$8.5 billion, buying into the flag carrier appears to be a risky venture. It has been widely speculated that Singapore Airlines (SIA) could be a suitor, but the airline has only said it is “keeping options open” on AI disinvestment.
The SIA group has an Indian based joint venture, full service carrier Vistara, in partnership with gigantic conglomerate, Tata. Vistara chief executive, Leslie Thng, said the airline’s backers have an open mind about AI.
Another contender is Indian LCC, IndiGo, which is the country’s largest airline by passenger numbers. Owned by InterGlobal Aviation, it has gone on the record as “interested” in the international business of AI and Air India Express. Commentators believed IndiGo may invite a foreign partner to join it in a bid for the carriers. Qatar Airways is a possible candidate for the joint venture as it already has expressed an interest in investing in IndiGo.
Qatar bought 9.61% of Cathay Pacific Airways from Kingboard Chemical Holdings late last year. It also controls 20.01% of the International Airlines Group (IAG), 49% of Meridiana and 10% of Latam. Turkey’s Celebi Aviation Holdings also publicly said it had an interest in buying some of Air India’s businesses.
The two other “Big Three” Gulf carriers are unlikely to be attracted to AI. Emirates Airline president, Sir Tim Clark, has focused the Dubai-based airline on organic growth. At the Emirate’s biennial air show last November, Etihad Airways CEO, Peter Baumgartner, said his Abu Dhabi carrier had ceased its strategy of investing in foreign carriers. The airline owns 24% of India’s Jet Airways.
New Delhi’s decision to allow foreign airline investment in AI was welcomed by most commentators. It was announced not long after India’s Parliamentary Standing Committee on Transport, Tourism and Culture released a report that concluded the government should review its decision to privatize or disinvest the airline group and explore the possibility of “an alternative to disinvestment of our national carrier which is our national pride”. The report wanted the sell-off delayed for five years, a recommendation the government chose to ignore.
The International Air Transport Association (IATA) said India’s amended Foreign Direct Investment (FDI) policy was a step in the right direction. “It removes the exemption that had been prevalent in the policy which was related to a single airline. At the same time, it is important the government ensured airlines in India have the most conducive operating and regulatory environment to compete effectively,” an IATA Asia-Pacific spokesman said.
India’s Minister of State for Civil Aviation, Jayant Sinha, said most public sector airlines, including Lufthansa, British Airways and Qantas Airways, have been disinvested by their governments. “They are now actually private sector airlines because the private sector can run airlines far better than governments can run them. It is why we are going through the strategic disinvestment process with Air India,” he said.
Investor interest in AI was being publicly sought at press time, when the government was expected to release the group’s core and non-core debts and assets.
Sinha said last month that local investors will retain management control of the airline and that the Indian government would add most of the AI debt to its own balance sheet. A special purpose vehicle will hold the unsustainable debt of the airline and the government is making “every effort” to protect employees, he said.
