By Satish Singh
The government has set a target to sell Air India by the end of this year. Under this, in May, the government will choose the buyer and within 6 months the management of Air India will be handed over to the new buyer. Tata Group and SpiceJet have been shortlisted for the bid to buy out Air India. Therefore, it is estimated that the process of calling for financial tender for the sale of Air India will be started soon. After analysing the financial position of Air India, Tata group and SpiceJet will make financial bids. In the financial bid, they will have to tell how much loan they will pay for Air India. However, in this regard, they will have to pay at least 15 percent as an upfront amount and the remaining loan amount will be transferred to Air India Asset Holdings Limited. Under the present circumstances, whoever bids the maximum amount for Air India will become the owner of Air India.
As of March 2020, Air India had a net worth of Rs 45,863.27 crore. These include land, buildings, aircraft fleets, other immovable and intangible assets. The total debt of Air India as per provisional figures of FY 2019-20 stands at Rs. 38,366.39 crore. Although Air India was heavily burdened with debt, but debt amounting to Rs.22,064 crore was transferred to the special purpose vehicle (SPV) called Air India Assets Holding Ltd (AIAHL) in FY20. It is estimated to have a loss of Rs 10,000 crore in the current financial year. Thus, Air India’s debt may increase to Rs 48,366.39 crore.
A group of 209 former employees of Air India had shown interest to buy Air India, but later they dropped out of the race to buy it. The group also had the support of NRI businessman Lakshmi Prasad and his InterUp-Ink. At present, the biggest contender to buy Air India is the Tata group. Although Spice Jet is also included in this race, but being financially weaker than the Tata group, it is not being considered as the probable buyer of Air India. It is noteworthy that apart from the Tata group and SpiceJet, the Essar group, Pawan Ruia’s company Dunlop and Falcon Tires had also submitted expression of interest (EOI) to buy Air India, but they subsequently dropped out of Air India’s bidding process.
The Tata group can do its bidding through Air Asia India, in which it has a large participation. SpiceJet has also made some plans for the acquisition, but they have not been disclosed. The Tata group is also in talks with its South East Asian region Singapore Airlines to buy Air India. Currently, the Tata group and Singapore Airlines together operate Vistara Airlines in India. Similarly, Singapore Airlines is not showing interest in Air India, as it has already suffered a lot of loss during Corona pandemic.
The Tata group originally established Air India in the year 1932 but was acquired by the Government of India in the year 1953. After the purchase of Air India, it is believed that the Tata group will have dominance in the aviation sector, because the public has unwavering trust in the Tata group. Vistara Airlines is also doing well in India. In this backdrop, it is being said that after buying Air India, the Tata group can emerge as an important player in the aviation sector in India.
For the last 20 years, many attempts are being made to sell Air India. Initially, it was said to sell its 20 percent stake. In previous year, till 31st August 2020 was the last date for submission of EOI for those companies who were wishing to buy Air India. Even in the year 2018, the government wanted to sell Air India, but no company was ready to buy it, because the government wanted to hold a 24 percent stake in it, and it had a lot of debt. In the year 2017, an attempt was made to sell 74 percent of its stake. It is believed that due to the stringent conditions laid down for selling Air India, it had not been sold at that time. The central government is now trying to sell 100 percent stake in Air India. The central government will also sell 100 percent stake in Air India Express Limited, while Air India will sell 50 percent stake in STS Airport Services Limited.
At the time of the merger of Air India and Indian Air Lines, Air India was in a profit of Rs.100 crore. Later, financial situation of Air India was devastated due to irregularities, mismanagement, political interference, and internal disturbances. According to a PIL filed in the court, 111 aircrafts were purchased for Rs.67000/- crore to benefit foreign manufacturers during 2004 to 2008. Aircrafts were leased at a cost of crores, but it was not benefiting Air India. Air India flights were intentionally shut down on busy air routes. Due to that private airlines got benefited. Comptroller and Auditor General (CAG) has confirmed such irregularities in its report.
The “K-787 Dreamliner” was purchased in September 2012 to enrich Air India’s fleet. The 256-seater Dreamliner can fly for 10 to 13 hours without any interruption. It is superior to the Boeing 777-200 LR in terms of designing of seats and fuel efficiency. Air India can make more profit by using the superior capability of the Dreamliner. Among the larger aircrafts, Air India has 8 aircrafts of 777-200 LR, 12 aircrafts of 777-300 ER and 3 aircrafts of B747-400. Among the smaller aircrafts, Air India has 12 aircrafts of A320, 19 aircrafts of A319 and 20 aircrafts of A321. At present Air India has a total of 169 aircrafts and has leased many aircrafts. Air India has around 1700 pilots and 4000 air hostesses.
Before the Corona pandemic, every day around 60,000 passengers were traveling abroad by Air India. Air India also launched 9 new international flights. Not only this, in the country, it also started flying services connecting many new cities. Even in the Corona era, Air India has worked to bring Indian citizens stranded in many countries. Every time, Air India has come out as a trouble-shooter like Hanuman in crisis.
Being equipped with all types of resources, Air India can still increase revenue through logical use of airplanes. For example, Air India trips can be increased on routes where there are more passengers. There may be more use of those aircrafts which consume less fuel. If a Dreamliner is used for cities such as Frankfurt, Paris, Hong Kong, Shanghai, it will take less time to get there and the cost of travel can also be reduced by 25 percent per kilometre, because the Dreamliner consumes less fuel in long route. Advertising can be resorted to entice travellers. Passenger fares can be reduced. The lesser fares can be compensated by increasing the rounds of the aircraft. Air India had partnered with Star Alliance in 2014. Star Alliance has a large network of 18500 aircraft at 1300 airports in 192 countries. Air India can take advantage of this huge network.
Led by former Air India chairman and Managing Director Ashwani Lohani, Air India tried to recover from the losses, but failed to achieve its target. However, with his effort, Air India was able to generate operating profit after 8 years, but Air India could not sustain its performance later. According to the available data, Air India owed Rs 4,98.17 crore to various government departments till December 2020. Air India allows various government departments to travel on borrowings based on credit notes. Not only this, Air India also doesn’t charge interest on borrowings for 15 to 30 days, but government departments often do not pay the amount of borrowings to Air India on time. Many times, they do not even pay interest. If the borrowings given to Air India are recovered by the time, then its financial position may be well up to some extent.
Although the government is now committed to sell Air India, I believe that it can still be made profitable in a planned manner. Indian Railways, UCO Bank, Punjab National Bank etc. have also done such magic in the past. In this scenario, it is not impossible to bring Air India to profit. In this case, all its stakeholders will have to manage the available resources efficiently and the government will also have to avoid undue interference in its functioning.
(Author is Chief Manager at State Bank of India, Mumbai and editor of “Aarthik Darpan” an in-house journal of SBI. Singh is also a freelance writer. The views expressed are personal opinion of the author. He can be reached at firstname.lastname@example.org and email@example.com.)