Air India divestment delay will cost exchequer

It’s a question that’s been on everybody’s lips for months now: Will the government roll back its plans to privatise the beleaguered carrier Air India?

The parliamentary standing committee on transport, tourism and culture suggests delaying the disinvestment plans by five years to give the airline time to revive itself.

But industry experts disagree. They say any delay will lead to a further devaluation of the ailing national carrier and will force the government to continue supporting the cash-strapped airline for the next five years.

Aviation expert Kapil Kaul, chief executive of the Center for Asia-Pacific Aviation, says a delay in disinvestment could cost the exchequer anywhere between Rs 16,000 crore and Rs 19,000 crore. “The parliamentary panel recommending that the divestment of Air India be postponed by five years will further erode its value...and these may be conservative estimates,” says Kaul.

It's a sentiment others share. “There is not much to gain from waiting for five years. In fact, there is no certainty that Air India will continue to post profits next year. There is no supporting evidence such as lower operating costs to defer Air India’s privatisation plans,” says Dhiraj Mathur, partner, aerospace and defence, PwC India.

The airline, which was founded by the Tata Group in the 1930s and nationalised in 1953, posted a net loss of nearly Rs 4,000 crore in 2015/16 and the government has pegged its losses in this financial year at Rs 3,579 crore. The government has already injected nearly Rs 24,000 crore out of its Rs 30,000 crore bailout fund in the airline.

The parliamentary standing committee in its draft report recommended the government review its decision to disinvest its stake in the national carrier and instead look for alternatives to revive the company. Attributing the airline’s failure to civil aviation policies, the committee suggests there should be less government control. “Air India should be given a chance for at least five years to revive themselves,” the report says. “Air India may be permitted to function as a government PSU with less government control.”

However, since the government has decided to continue with the stake sale, the committee recommends employee interests be protected. It said the airline should develop a “strategic package” for pension, gratuity, VRS, and the wages of contractual workers in case the disinvestment of Air India is inevitable.

Both foreign and domestic private carriers such as Tata, Singapore Airlines, and Indigo have expressed interest in buying the airline.