A good vehicle?

The decision came after an array of recommendations on Air India‘s future from the government’s top planning body, Niti Aayog. It’s hardly surprising. The State owners are thoroughly fed up with the carriers’ ongoing woes. It has accumulated debts of some A$10.5 billion and is surviving on a $6.2 billion government bailout package spread over a 10-year period from 2012 as it struggles to improve its financial position. Management did manage to boast a meagre $21.6 operating profit in its latest year, thanks to low fuel prices and increased passenger numbers. But it still posted a net loss of $520.7 million in 2016.

“The state owners are thoroughly fed up with the carrier’s ongoing woes.”

As a former Air India executive now consultant Jitendra Bhargava, put it: “Air India would perform better if it is removed from the clutches of government completely”.

Potential buyers? Well, it seems leading the speculation is the Tata Group, whose founder J. R. D. Tata laid the original foundations of Air India in 1932 when it launched Tata Airlines, renamed Air India in 1946 and nationalized in 1953. Word is that Tata’s current big cheese, N. Chandrasekaran has already personally led informal talks with government, expressing interest in taking up a 51 per cent majority shareholding.

There have also been reports that Tata is keen to enlist an existing partner, Singapore Airlines (SIA), to snap up the remaining 49 per cent. There’s no comment on that from SIA but there is good reason for the speculation. The two are already jointly own Indian full-service domestic airline Vistara. And back in 2000 The Indian company and SIA announced they would be willing to each bid for 40 per cent of Air India.

“Singapore Airlines is a global player with impeccable credentials”, a Tata statement said at the time. “Its airline operating competency will be a significant asset to the consortium and will be critical in ensuring the success of Air India in the international market place”.

At the time, that came to nothing, though in more recent times, in 2013, Tata’s then chairman Ratan Tata, said he would look at Air India if it were to be put up for disinvestment.

There’s was no doubt that despite decades of dithering the urge to remove Air India from government hands was serious. Air India officials have confirmed privately that its fleet expansion plans have been put on hold at the request of government while the decision was made. Discussions on purchasing new aircraft were suspended at the request of the aviation ministry, although aircraft already on order will be taken. Air India is in the process of adding 17 aircraft – 10 more ATR turboprops for subsidiary Alliance Air and seven more Airbus 320 neos for Air India itself. However, a buyer will have lots to consider. Any bidder would likely be expected to absorb loans of about $4 billion linked to aircraft purchases, although that sum could be offset by the sale Air India’s real-estate and other non-core assets.

“Air India is a good vehicle for an investor if the non-aircraft related debt is taken care of and the balance sheet is cleaned up seriously and completely,” said Kapil Kaul, South Asia chief executive of consultants CAPA.

Having taken charge, a new owner would also have a challenge rebuilding the carriers’ image and markets. It’s share of India’s domestic market over the past ten years has shrunk from 35 per cent to 12.9 percent and it now only the country’s fourth biggest local operator after Indigo, Jet Airways and SpiceJet.

Nevertheless, there is no doubting prospects for India’s airline industry, with a market growing even faster that China. In May, the latest month’s statistics available, domestic traffic grew 17.36 per cent and these high double-digit figures are a regular monthly occurrence.

And Air India does have three profitable subsidiaries: budget Air India Express, AI Transport Services (ground handling) and AI-SATS (a 50:50 ground handling JV with Singapore Airport Terminal Services). There are currently 500 commercial jets operating in India and local carriers have more than 850 new aircraft on order.

As Civil Aviation Minister Sinha put it: “These orders have been placed because they are in a profitable business and sustainable too”.

Though that reference hardly applies to Air India in its current form.

There’s another potential danger on the horizon. Air India’s often fiery and aggressive unions, including its pilots (many of them are owed wages which have not been paid) have threatened to take massive industrial action if the carrier is privatized without their issues being resolved. That would be another landmine in the way of Air India’s potential to get back into stable profitability.