Wobbly Air India’s IPO to take off in 2008

Govt to divest 10-15% equity in the airline

NEW DELHI: It seems Air India’s mounting losses haven’t deterred the government from contemplating a public issue for the state carrier.

The civil aviation minister Praful Patel said on Tuesday that the government could divest between 10-15% equity in the carrier by the second half of next year.

“We are keen to broad base the ownership of Air India and an IPO with 10-15% equity dilution will help us do that. Even employee stock options would be considered,” the minister said on the sidelines of the India Economic Forum here.

Patel’s comments come just when the beleagured state carrier has sought a Rs 1,000 crore relief from the government.

If the government does agree to this bailout package, this money would be used for expanding the equity base of AI, which stands at a mere Rs 45 crore as of now.

While acknowledging that the carrier has sought relief, Patel said, “They need more capital infusion because asset acquisition (AI is faced with chronic fleet shortage and has to place large aircraft buy orders soon) needs more equity.”

For 2006-07, Air India posted a net loss of Rs 448 crore against Rs 15 crore profit in the previous fiscal. And even in the current year, AI is expected to report a net loss of about Rs 350 crore.

When asked whether Air India being a loss making entity would not delay the divestment process, Patel said “profitability is certainly an issue”.

To a question on whether Vijay Mallya’s Kingfisher Airlines would be allowed to fly abroad from next year despite not fulfilling the mandatory five year domestic operation condition, the minister said, “If Deccan and Kingfisher merge, why should we have a problem?”

Deccan Aviation is a 46% subsidiary of Kingfisher and becomes eligible to fly overseas from August next year; Mallya has been asserting that he would be able to fly Kingfisher abroad on Deccan’s entitlement.

Expressing his discomfort at the rising Aviation Turbine Fuel (ATF) prices, Patel again exhorted the petroleum ministry as well as the state governments to look at reducing sales tax “meaningfully”.

His ministry has been seeking a “declared goods” classification for ATF which would reduce the total taxation element on ATF substantially.

When asked about the current restrictions on foreign carriers buying stake in Indian ones, the minister said “Let domestic carriers scale up and then perhaps we will look at this. Right now, our carriers are soft targets”.