Will India Privatize Air India?

June 23--NEW DELHI -- Will the Narendra Modi-led National Democratic Alliance bite the bullet on Air India privatisation and fix the mess that has inflicted India's national carrier, which has seen thousands of crores of taxpayer's money go down the drain?

Despite recent improvements in operating performance, the airline faces difficult challenges.

Already, the government has infused Rs. 12,200 crore of equity (till January this year) into AI out of the Rs. 30,231 crore promised, with no visible signs of a turnaround.

The once profitable airline has been posting record losses. (see graphic). Aviation consultancy firm Centre for Asia Pacific Aviation (Capa) estimates that AI will post a loss $900 million to a $1 billion (Rs 6,000 crore) in 2014-15.

AI has a debt of Rs. 49,000 crore while accumulated losses between 2007-08 and 2013-14 stood at around Rs. 38,000 crore. "The change of government is an appropriate time for bold, decisive action on AI's ownership," said Kapil Kaul, South Asia CEO, Capa.

"A strong foreign airline should be inducted as a 26% and eventually 49% strategic partner," said a recent Capa report. "Over time, as AI turns around and emerges a viable and competitive airline, the government can further divest its stake down to 26%, with the balance 25% to be held by private Indian interests or other stakeholders of public sector units."

"To keep pumping taxpayer's hard-earned money into AI is criminal. AI privatisation needs to be on the government's agenda now as otherwise it will be too late," said Subhash Goyal, Chairman, STIC Travel Group.

According to Capa, AI is faced with almost "unthinkable funding requirements" and fleet modernisation alone could require "$12-14 billion over ten years, let alone operating losses".

"If the status quo continues, from 2015-16 onwards the airline will drain up to $1 billion per annum from the public exchequer over the next decade with no meaningful improvement in the carrier's situation. A dramatically different approach is required to that which has been pursued in the past," the report says.

Copyright 2014 - Hindustan Times, New Delhi

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