The Union Cabinet on June 28 gave its ‘in-principle’ nod
to divest stakes in Air India — a wholly owned government airline. The Cabinet
decided to go for Air India’s strategic disinvestment, The Cabinet also
approved strategic disinvestment in five of Air India’s subsidiaries — its MRO
unit Air India Engineering Services (AIESL), ground handling arm Air India
Transport Services, Air India Charters which operates Air India Express and
Airline Allied Services which operates Alliance Air and Hotel Corporation of
India (which owns Centaur Hotels), along with a joint venture AISATS.
NITI Aayog’s recommendation on
strategic disinvestment of Central public sector units, including Air India,
was the immediate trigger for its stake sale.
The recommendations given by the Cabinet
Secretary-led group were forwarded to the Cabinet Committee on Economic
Affairs, chaired by Prime Minister Narendra Modi, which gave its ‘in-principle’
nod for the national carrier’s strategic sale
in September, had invited applications for engaging up to two advisors and a
legal advisor for the strategic disinvestment of Air India and its subsidiaries
and joint venture.
firm had outbid Luthra
& Luthra and Shardul Amarchand Mangaldas after
the financial bid was opened, with Cyril Amarchand Mangaldas quoting a fee of
Rs. 29.9 lakh for the prestigious Air India disinvestment deal.
KPMG, BNP Paribas and
Rothschild India Pvt Ltd, are jostling with each other to advise the government
for the strategic sale of Air India and its subsidiaries.
One team has been constituted for finance, human
resources and P&F (properties & facilities) department. Secretarial and
procedural matters, including formalisation of relationship with subsidiary
companies and future business plan of subsidiary companies would be taken care
of by another team. There would also be a team for bilateral slots, commercial
arrangements and issues.
BI Caps would prepare 3-5 year business plans
for subsidiary companies to be divested, help obtain approvals from the consortium
of banks for the transfer of real estate properties and other security.
In terms of possible buyers
for the debt-ridden airline, media speculation seems to suggest that IndiGo
Airlines and Tata Group have shown interest
Why is the right time?
For the month of October, India’s domestic air traffic
grew at twice the rate of China’s. This is the 38th straight month, as per
International Air Transport Association (IATA), which has seen double-digit
growth. Year-on-year growth touched 20.4 percent in domestic traffic, the
highest in the last 10 months.
For the month of October, domestic air traffic in China grew by
10 percent, Brazil 7.7 percent, Russia 6.1 percent, the United States 5.3
percent, Australia 2.8 percent and Japan 2.3 percent.
As a result of the continual growth, foreign airlines have now
started taking India seriously. Recently Air France-KLM signed an ‘Enhanced
Cooperation Agreement’ for the development of their operations between Europe
and India. This alliance is over and above the arrangement that Jet Airways has
with Etihad Airways, which is also an equity partner in the company.
Foreign airlines are more interested in
tapping Indian passengers on their way abroad. That being the case, Air India
has a much wider reach as compared to Jet
Airways. Air India
operates to 44 foreign destinations and 72 domestic destinations. On the other
hand, Jet Airways flies to a total of 65 destinations which include 45 domestic
destinations and 20 international ones.
To add to the advantage is government’s favourable policies
for the sector, the stable foreign currency, and relatively stable oil prices.