The national carrier’s business plan is being monitored continuously to keep track of how much money the government needs to infuse in the airline
Modi government could well be on the path of privatising Air India, state backed national carrier, as the airline saw its budgetary support drying up in the interim budget of 2019-20. The government has allocated a meagre Rs 1,00,000 as extra budgetary support for the debt laden carrier which sits on accumulated loss of Rs 55,000 crore.
According to the budget document, Centre’s equity backing for the airline dropped by 99.99 percent to Rs 1 lakh against budgetary support of Rs 3,975 crore (revised estimate) during 2018-19.
The budget document further states that the amount for the “turnaround plan” of Air India will be transferred to the special purpose vehicle (SPV), Air India Asset Holding Company Ltd, to undertake the debt servicing programme.
As per the turnaround plan of the government, half of Air India’s debt of Rs 29,000 has been transferred to the SPV which has been tasked with selling the State carrier’s non-core, non-operational assets. The national carrier was reeling under a cumulative debt of Rs 55,000 crore until November 2018, when the government announced a revival plan for the carrier.
The SPV will be using the sale proceeds from the sale to pay off the debt that has been transferred in it. Apart from the current Rs 29,000 crore for FY19, the SPV will be given the entire budgetary support allocated under the interim budget to service the debt of Air India.
After the transfer of debt done in November, Air India is left with a debt of Rs 26,000 crore in its books of accounts. The airline also had an accumulated loss of Rs 30,000 crore till November 2018.
Air India’s first non-core asset to be sold will be its ground handling ARM, Air India Air Transport Service Ltd (AIATSL), which is the largest ground handling arm and has a market share of 80-85 percent. The subsidiary, being profitable, was considered the best option to start the process.
The government will soon be bringing out a preliminary information memorandum (PIM) for AIATSL to start the bidding process, which it envisions to complete by March 2019.
According to officials in the know, the new government will now be tasked with privatising the airline.
“The next government will privatise Air India in FY20… For this financial year, focus of the government is to service the debt,” the official told Moneycontrol.
When asked if the airline needed more budgetary support, the official said that the amount was “good enough” to survive the carrier.
According to senior aviation ministry officials that Moneycontrol spoke to, AI needs to be completely privatised without any government stake in the company.
Modi government had initiated a divestment process for the airline where it proposed to sell 76 percent of its stake.
The proposal, however, saw no bidders coming forward as the airline had huge debt obligation, was a loss making entity and was being sold as a single entity even as bidders were interested in individual businesses on Air India.
Air India has been incurred losses due to stiff competition from budget airlines coupled with high fuel prices. During (calendar year) 2017-18, the airline’s market share was 12.7 percent.
The national carrier’s business plan is being monitored continuously to keep track of how much money the government needs to infuse in the airline.
So far, equity infusion of Rs 1,600 crore has been done in the airline and another Rs 1,500 crore is in the pipeline. Finance ministry had sought an additional budgetary grant of Rs 2,345 crore in December 2018 for the airline. This led to the upward revision of the budgetary allocation for AI from Rs 650 crore to Rs 3975 crore.Indian Union Budget 2019: What does the FM have up his sleeve in the run up to the General Elections? Click here for live Budget 2019 news, views, analyses and more.
