The sale of government-owned Air India is almost finalised — Here’s what’s happening6 min readReading Time: 5 minutes
The history of the state-owned or government-owned aircraft Air India (AI) dates back to the 1930s. Owned by Air India Limited, a government-owned company, Air India was founded by entrepreneur JRD Tata and was called Tata Air back then.
Now, the airline, which holds a special place in the hearts of many Indians, is up for sale. This sale process has been going on for years now, but in just three weeks, the new owner of the flag-carrier could be announced, the government has said.
Owliver’s Obscure Observations
A flag carrier is a transportation company, such as an airline or shipping company, that enjoys special rights or privileges, given by the government, for international operations.
Why is it being sold?
Over the decades, the airline has flown millions of people, both Indians and foreigners, to every nook and corner of the country and also to different parts of the world. Its iconic maharaja mascot is recognised across the globe. So why is it being sold? Let’s explore.
Air India has been in financial trouble for many years. It has been making losses since 2007, with the current losses standing at more than Rs 20 crore per day! Some experts say that a big reason for the downfall of this airline was the merger between Air India and Indian Airlines, which led to even more losses.
Air India’s mascot is the portly maharaja. He was not originally supposed to be the mascot. Sketched by Umesh Rao, an artist from Mumbai, the maharaja made his debut on the in-flight memo pad in the mid-1940s.
However, the effort to sell the airline is not new. On 28 June 2017, the government approved the privatisation of Air India. This means that the government wants a private company to buy the flight and also take on all the debt the company has incurred over the years.
Some reasons for AI’s sale
High interest burden on debt
Increase in competition from low-cost flights
High input cost
A committee was 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.
According to this EOI, the new owner would have to take on a debt of Rs 33,392 crore and the government wanted to complete the selling process by the end of 2018. However, at the time, no private firms showed any interest in buying the debt-laden airline.
Then, the government decided to turn things around. It decided to sell 100% shares of the airline and started its preparation in late-2019. On 27 January 2020, the government released the EOI again to invite bidders. It also decreased nearly Rs 30,000 crore of debt and liabilities in a Special Purpose Vehicle (SPV).
This process of the government selling off 100% shares in called ‘divestment‘.
Owliver’s Obscure Observations
A special purpose vehicle, also called a special purpose entity (SPE), is a subsidiary created by a parent company to isolate financial risk. Its legal status as a separate company makes its obligations secure even if the parent company goes bankrupt.
What’s happening now?
Currently, the final bids for acquiring Air India have been submitted by Tata Sons and SpiceJet’s Ajay Singh. The government could select the winner of the bid in approximately three weeks. Two high-level committees will decide the reserve price for the national carrier within this period.
Reverse pricing, also known as ‘name-your-own-price’, describes a method of pricing in which the seller does not set a price, but the buyer makes a price bid. Potential buyers bid for a specific product without knowing the seller’s selling price.
This will be one of the final steps in the Air India divestment process, following which the government will plan to complete the transaction by December this year. However, this time frame could change if there are any disagreements between the buyer and the seller.
Once the final reserve price is determined, the proposal will be floated before the Air India Specific Alternative Mechanism (AISAM), which is heading by Union Home Minister Amit Shah. AISAM members include the finance minister, commerce minister and aviation minister.
Do you know who the finance, commerce and aviation ministers of India are? Solve the puzzle below to test your knowledge.
Why is privatisation important?
The hope is that with the privatisation of AI, its operations and costs will get streamlined, services on board will improve and basic services like wi-fi will also be made available to flyers.
This will also improve and bring back foreign flyers, who, over the years, have shifted to international flights. A new-and-improved AI will also bring a boost to some of India’s large airports in Delhi, Hyderabad, Mumbai and Bengaluru.
A strong international carrier in India will give a boost to the large airports built in Delhi, Hyderabad, Mumbai and Bengaluru. This could also be a boost to the economy by way of jobs created.
How does all this affect us?
For starters, the successful completion of AI’s divestment will possibly give you the option of flying on one more low-cost carrier domestically in the form of Air India Express. Currently, this flight is primarily focussed on connecting Kerala with West Asia.
When it comes to international travel, passengers can look forward to better service and amenities. For example, AI is the only Indian carrier to fly on the India-San Francisco and India-Australia routes non-stop.
Sources: Hindu Businessline, India Today, Britannica