Air India Disinvestment Deal

After 68 years, Air India is all set to return to the Tata fold.

The Tatas will own 100% stake in Air India, as also 100% in its international low-cost arm Air India Express and 50% in the ground handling joint venture, Air India SATS.
Apart from 141 planes and access to a network of 173 destinations including 55 international ones, Tatas will also have the ownership of iconic brands like Air India, Indian Airlines and the Maharajah.

Prominent industrialist JRD Tata founded the airline in 1932 and named it Tata Airlines.
As India gained Independence, the government bought 49% stake in AI.
In 1946, the aviation division of Tata Sons was listed as Air India, and in 1948, the Air India International was launched with flights to Europe.
In 1953, Air India was nationalised and for the next over four decades it remained the prized possession for India controlling the majority of the domestic airspace.

End of Monopoly: With economic liberalisation and the growing presence of private players, this dominance came under serious threat.
Govt running an airline: Ideologically too, the government running an airline did not quite gel with the mantra of liberalisation.
Continuous losses: By 2007, AI (which flew international flights) was merged with the domestic carrier, Indian Airlines, to reduce losses.
Wastage of taxpayers money: But it is the mark of how poorly the airline was run that it has never made a profit since 2007.

Ans. Fear over Operational Freedom

The first attempt to reduce the government’s stake — disinvestment — was made in 2001 under the then NDA government.
But that attempt — to sell 40% stake — failed.
In 2018, the government made another attempt to sell the government stake — this time, 76%. But it did not elicit even a single response.
In the latest attempt started in January 2020, the government has been able to finally conclude the sale.

Govt gives up stakes: The mere fact that the government retained a partial stake. In other words, as long as the government kept a certain shareholding of AI, private players did not seem interested.
Operational freedom: That’s because the mere idea of government ownership, even if it was as little as 24%, made private firms wonder if they would have the operational freedom needed.
Debt sharing: In the past, the government expected the bidders to pick up a certain amount of the debt. This time, the government let the bidders decide the amount of debt they wanted to pick up.

Disinvestment: It underscores govt commitment to reducing the its role in the economy.
Easing burden on taxpayers: This claims to have saved taxpayers from paying for daily losses of AI.
Economic reforms: Given the historical difficulties in AI’s disinvestment, or any disinvestment at all this is a significant achievement.

Missing the target: Purely in terms of money, the deal does not result in as big a step towards achieving the government’s disinvestment target of the current year.
Unresolved bankruptcy: The assets left with the government, such as buildings, etc., will likely generate Rs 14,718 crore. But that will still leave the government with a debt of Rs 28,844 crore to pay back.

Business success: From the Tatas’ perspective, apart from the emotional aspect of regaining control of an airline that they started, AI’s acquisition is a long-term bet.
Investment boost: The Tatas are expected to invest far more than what they have paid the government if this bet is to work for them.

Complete liberalization: The privatisation of Air India is a message from the Government to the markets and global investors that it has the political will to bite the reform bullet.
Roadmap for economic reforms: The govt had to shed the “over-conservatism” that is typical of bureaucracy.
Future disinvestments: A transaction as “tough and complex” as Air India’s in an open, transparent and competitive bidding process, will boost future privatisation.

Other loss-making PSUs continue to drain taxpayers’ hard-earned money and get abused and fleeced in the name of social welfare.
The govt should imbibe this experience gained in future disinvestment biddings.

Join the Community