Union Cabinet gives in-principle approval for disinvestment of debt-laden Air India

70 years old Air India, India’s national airline will very soon be on sale. Union Finance Minister Arun Jaitley announced in a  press conference on Wednesday after meeting of Cabinet Committee on Economic Affairs that cabinet has given in-principle approval for disivestment of debt-laden Air India. NITI Aayog had earlier strongly batted for disivestment of Air India which got support from Arun Jaitley.  "Disinvestment is always the art of the possible. We will do so now also. Individual units can go in the direction of privatisation. There is a possibility. Some have been identified," said Arun Jaitley earlier. 

Group will be set up to finalize modalities/details of disinvestment of Air India, such as extent etc.: FM Arun Jaitley. pic.twitter.com/YeTX9tUs5Y

— ANI (@ANI_news) June 28, 2017

 Government is considering 2-3 options for debt retirement including fleet and real estate assets. Another option is to hold 26% share in Air India and after sometime start offloading it strategically. Government may get approximately Rs 15000 crore from existing fleets and 10-12 thousand crore from land and buildings. First, Finance Ministry has to take decision to write-off debt and then would start considering potential buyer.
 
Finance Minister Arun Jaitley had said earlier," Niti Aayog has given its recommendations to the Civil Aviation Ministry, which will decide on the process of disinvestment of Air India".  Air India was started by Jamsed Tata in 1932, which was nationalised in 1948.

 The Debt-Trap

Air India operating internationally and Indian Airlines, the domestic ‎carrier were merged into a single entity National Aviation Company of India Limited (NACIL) in 2007. Both airlines were dissolved without winding up. As a result of this, all assets, liabilities and obligations of both these companies were taken over by NACIL, effective from August 27, 2007.  On November 24, 2010, NACIL was renamed as Air India‎ Limited. 
 
The cash accruals of the company have been negative since FY 2007, which is primarily on account of the operational losses coupled with the interest expenses on account of borrowings for aircraft purchase.  To address the financial issues, a turn-around plan (TAP)‎ and financial restructuring plan (FRP)was formulated by the company in consultation with Deloitte Touch Tohmatsu India Pvt Limited and SBI Capital Markets. 
 
As per ‎FRP, Government had to infuse Rs 42,182 crore as additional equity over 22 years, in a phased manner.  Currently there is delay in equity infusion. Against the planed equity of Rs 22,609 crore for the last five years (FY 2012-2016)‎, total equity infused till date is  Rs 22,280 crore.