Air India Disinvestment Gets a New Beginning With TATAs

The disinvestment of national carrier Air India will take place on January 27, 2022.  The closing balance sheet have been handed over to TATA GROUP. Tata group was named the winning bidder for Air India in October, ahead of a consortium led by SpiceJet Ltd Chairman and Managing Director Ajay Singh for analysis and to make changes if any. Before we get in to much details about the Conglomerate TATAs further role lets understand what is Disinvestment and Why the National Carrier had to take this decision.

What Is Disinvestment? 

Divestment or disinvestment means selling a stake in a company, subsidiary or other investments. Businesses and governments resort to divestment generally as a way to pare losses from a non-performing asset, exit a particular industry, or raise money. 

Governments often sell stakes in public sector companies to raise revenues. In recent times, the central government has used this route to exit loss-making ventures and increase non-tax revenues.

Why Air India’s Step To Disinvest? 

The government’s efforts to turn around the finances of Air India seem to have failed with the national carrier’s eroding market share, continuous losses and a mountain of debts. Air India has not registered profit since over a decade after the merger of the erstwhile Indian Airlines (domestic operations) with Air India (international operations) in 2007.

However, the primary reason for Air India’s disinvestment was the government’s inability to cope with its debt of ₹52,000 crore. Around ₹22,000 crore of the total debt accounts for aircraft acquisition loan and the rest is related to debt for meeting its daily and operational expenses.

The Entire Process            

On 28 June 2017, the Government of India approved the privatization of Air India. A committee has been set up to start the process. In March 2018, the Government issued an Expression of Interest (EOI) to sell 76% stake of Air India, along with low-cost airline Air India Express, and a 50% stake of AISATS, a ground handling joint venture with Singapore Airport Terminal Services (SATS). According to the EOI, the new owner would have to take on a debt of ₹33,392 crore and a bid would have to be submitted by mid-May as the Government wanted to complete the selling process by the end of 2018, but no private firms showed any interest in buying the debt-laden airline.

Having failed on previous occasions to sell the airline, the Government decided to sell 100% share of the airline and started its preparation in late-2019. On 27 January 2020, Government released the Expression of Interest (EOI) to invite bidders. This time the Government decided to sell 100% shares of both Air India and its budget carrier Air India Express as well as 50% shares of AISATS and to attract more bidders this time, the government has already decreased nearly ₹30,000 crore of debts and liabilities in a Special Purpose Vehicle (SPV).

In September 2021, government issued fresh tenders for selling the airlines, where Spice Jet’s Ajay Singh-led consortium and Tata Sons shown interest in the bid. Finally, on 8 October 2021, Air India, along with its low cost carrier Air India Express and fifty percent of AISATS, a ground handling company, were sold for ₹18,000 crore to Talace Private Limited, a Tata Sons’ SPV.

Why Disinvestments Are Happening In India?

In 1999, the Government set up a separate Department of Disinvestment. It is now known as the Department of Investment and Public Asset Management or DIPAM. It operates under the Ministry of Finance and deals with disinvestment-related tasks. The disinvestment targets of this department are announced in each Union Budget. It varies every year, with the Central Government taking the final call on whether it will increase its disinvestment target or not.

In FY 2021 the Indian Government set up a target of Rs. 2.1 Lakh crore . However considering the aftermath of the Covid 19, it raised just 10 % of the desired sum . In fact it recorded the lowest sum raised in the preceding seven financial years. The  target for this fiscal year was three times more than that of the preceding year.

Keeping that in mind this year , GOI has set a target of gathering Rs 1.75 Lakh crore from disinvestment. This plan includes banks, LIC , Shipping Corporation of India , and many other PSUs.

Here are the main objectives of disinvestment in India:

1. Reducing the financial burden on the government
2. Improving public finances
3. Encouraging an open share of ownership
4. Introduction, competition, and market discipline
5. Depoliticizing essential services
6. Upgrading the technology used by public enterprises to become competitive
7. Rationalizing and retraining the workforce
8. Building competence and strength in R&D
9. Initiating the diversification and expansion programmes

Prospects Of The Deal

Air India will now be able to better utilize the aviation bilateral rights with other countries. International travelers will, therefore, be able to travel more efficiently to more locations directly, instead of travelling through another country.

With reduced borrowings for Air India, the government will have the bandwidth to redirect its resources to other projects critical for economic development. The Centre will continue to provide gratuity and PF benefits to the existing employees of Air India and Indian Airlines, the Ministry of Civil Aviation.

The enormously successful privatization of Air India will provide the government with the confidence to drive and implement more such reforms. Thus The Air India privatization will be a significant booster dose for not only for the company, but also for the overall economy, industry, markets and for the government to keep pushing the major reforms agenda. Everyone involved in this exercise of privatizing a two-in-one Maharaja, the original Air India and Indian Airlines combined.