India's aviation sector witnessed a sharp increase in passenger growth in the past few years in contrast to the falling numbers of flyers globally, pitching the country as the fastest growing aviation market in the world last year. This year though, that growth had faced hurdles as high fuel cost, increasing airport operation charges and high taxes took a toll on India's private airlines.
The crisis has spilt out in the aviation sector with India's flag carrier Air India tackling with its own share of financial woes. Its debt burden has gone up to Rs 58,352 crore and the airline sought emergency funds from the government to run operations and be able to pay salaries earlier in March. More than half of this debt has been taken off Air India's books and transferred to a Special Purpose Vehicle, Air India Assets Holdings Ltd (AIAHL), which was created last year in January.
During the interim budget in February this year, AIAHL was allocated Rs 3,900 crore for the previous and current financial years to service Air India's debts.
Currently, Air India is again staring at a crisis and may run out of funds to pay salaries beyond October to its more than 26,000 employees. While Air India's domestic business had registered a decent growth over the last one year, the recent developments had ensured high cash outflow on account of interest payments to banks, payments to fuel suppliers and to airport service providers.
"Air India is incurring losses of Rs 15 crore a day, and, therefore, the government is attempting to make the carrier more viable, revive it and then disinvest it," Hardeep Singh Puri, Union civil aviation minister recently told the Rajya Sabha in reply to a question. Last month, Puri had told the Lok Sabha that in the 2018-19 fiscal, Air India had incurred losses of Rs 7,635 crore and received a fund infusion of Rs 3,975 crore by the government.
According to him, Air India had incurred losses of Rs 5,374 crore on an average in the previous four years. Little wonder then that this time before the Union budget, the civil aviation ministry is learnt to have suggested a Rs 22,000 bailout package for the airline. Civil Aviation secretary Pradeep Singh Kharola is learnt to have been in constant touch with Ashwani Lohani, chairman, Air India, before making his pre-budget presentation to revenue secretary Ajay Bhushan Pandey.
Though the details of this bailout package are yet to be disclosed, it is said that the new package could be announced in the Union budget by finance minister Nirmala Sitharaman in a bid to make the airlines competitive before it can be put on the block again. Last year, an expression of interest to divest 74 per cent government stake in Air India and its allied companies found no takers.
This year, prior to the budget exercise in July, Air India was asked to finish its accounting for the previous year, as it would be a deciding factor towards inviting Expression of Interests (EoIs) from probable buyers one more time. Like last time, this year also, consultancy firm Ernst & Young would be advising Air India as its transaction adviser.
Civil aviation ministry officials said EY has already sought details about Air India's last year performance and details of all its tangible and non-tangible assets, and pending litigations on the airline. These details would likely help EY to draft a second bid document for the debt-stressed airline.
This time with the government willing to divest its 100 per cent stake in the airline, the exercise is being taken in all seriousness. The strategic disinvestment of Air India has also been prioritised by the Department of Investment and Public Asset Management (DIPAM) under the finance ministry.
"We are already working on a bank guided plan to revive Air India. It is one of our last year's pending project and efforts would be made this year for strategic disinvestment at an opportune time," Atanu Chakraborty, secretary DIPAM, told THE WEEK. "We are constantly monitoring the developments and the disinvestment strategy, too, is being changed this year," he added.
The government has adopted a piecemeal approach in divesting its stake in the various Air India companies. For this year, it seeks to disinvest Air India's budget carrier, Air India Express, and its airport services joint-venture company, Air India SATS Airport Services Pvt Ltd. Air India's MRO services wing Air India Engineering Services Ltd is next in line for strategic disinvestment.
According to informed sources in the finance ministry, the disinvestment process of the airline could take more than six months from now. "Nothing will happen in a hurry. We want to be fully prepared before inviting the bids for a second time," said a finance ministry official.
Finance minister Nirmala Sitharaman is likely to keep this year's disinvestment target same as that of last year's—Rs 90,000 crore. The government attained strategic stake sale and disinvestment in a number of PSUs last year and garnered about Rs 63,000 crore in disinvestment proceeds. This year, if the Air India sale deal falls through, the disinvestment target is likely to be exceeded. That would be good news for Sitharaman who would be looking to reverse a widening fiscal deficit in the budget this year.