CAPA welcomes govt’s second attempt to privatise Air India

On July 5, the government announced that it would again initiate the process of disinvestment of national carrier Air India in view of current environment. "The government would re-initiate disinvestment of Air India," Finance Minister Nirmala Sitharaman had said in her first Budget speech.

Sitharaman also said the government will consider keeping its stake below 51 percent in some public sector enterprises on a case-by-case basis, hinting at selling over 49 percent stake in Air India. Last year, the government had failed to sell Air India when it had offered 74 percent stake.

As per the provisional figures of FY 2018-19, the total debt of Air India Ltd as on March 31, 2019, is Rs 58,351.93 crore. While no party has come forward till now to show interest in Air India, IndiGo has shown interest, however, only for the international segment.

In order to make the terms and conditions more lucrative, the government has recently said that it would look at further liberalising the foreign direct investment norms in aviation.

Last year, ahead of the first attempt at Air India's divestment, the Union Cabinet had eased the FDI norms for the sector by allowing 100 percent FDI into domestic carriers under automatic route and had approved investment up to 49 percent under approval route in Air India.

While CAPA expects that the privatisation process will be fast-tracked, it also observed that the government should give sufficient time to serious bidders to conduct appropriate due diligence. “Assuming that the tender is launched in the month of August, it should be feasible to select the successful bidder by the end of December 2019," CAPA India said.

The research firm also stressed that the senior management team of the airline needs to remain focused on optimising the carrier’s commercial, operational and financial performance and hence, a separate team may be needed to handle divestment-related issues.

As the interest is likely to be strong this time, it is possible that global carriers, including those from the Gulf, may enter into a joint venture with large Indian conglomerates for the bids, CAPA India has said.

The temporary suspension of Jet Airways operations is also expected to result in better response and will help in Air India divestment.

"CAPA has long maintained that the Indian market can only sustain two full-service carriers, and that the operation of three such airlines – Air India, Jet Airways and Vistara – was not sustainable. The suspension of operations by Jet Airways since April 2019 has removed the largest full service competitor to Air India, increasing the chances of a successful divestment this time around," the firm noted.

While the current global and national economic environment, and geo-political instability may have some impact on investor sentiment, the outlook for the performance of Indian carriers remains positive, especially in light of the suspension of Jet’s operations and the recent softening of oil prices, CAPA observed.