Cabinet approves Air India disinvestment

New Delhi: The Union Cabinet on Wednesday gave the green signal for disinvestment in national carrier Air India and five of its subsidiaries, but left it to the Group of Ministers (GoM) to decide the extent of disinvestment.

The GoM — on “Air India-specific Alternative Mechanism” — will be headed by finance minister Arun Jaitley, and is also expected to decide on how much of the national carrier’s Rs 50,000 crore debt would be written off.   Currently, the Union government is the sole owner of the national carrier.

Announcing the decision, Mr Jaitley said that the Cabinet has given “in-principle” approval for disinvestment in Air India. A GoM will be set up to finalise modalities of the disinvestment, including the quantum of stake sale, he said. The GoM will include civil aviation minister Ashok Gajapathi Raju, besides other ministers.

In a formal statement issued later, the government said, “The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, has given its approval to fourth tranche recommendations of Niti Aayog on strategic disinvestment of CPSE (strategic disinvestment of Air India and five of its subsidiaries) based on the recommendations of core group of secretaries on disinvestment (CGD).”

Some of the issues that the GoM will decide on are how to tackle the unsustainable portion of Air India’s debt, the eligibility criteria for bidders, hiving-off assets to a shell company, and disinvestment of the airline’s profit-making subsidiaries. has five subsidiaries — Engineering Services, Transport Services, Charters, Hotel Corporations of India and SATS (along with Singapore Airport Terminal Services) — of which three are profit-making.

Top government sources had said recently that a major issue under consideration is the Rs 50,000 crore debt that the airline is reeling under, due to loans taken a decade ago when scores of aircraft were ordered. The GoM is expected to take a final view on how much of the debt the government will shoulder. Speculation is rife that about Rs 25,000 crore debt could be waived off.

Sources also said that 51 per cent or more of the government’s stake in the airline could be sold to a private entity, thus privatising it. Another option is that the government allows Air India to remain a national carrier by controlling at least 51 per cent stake.

Air India has incurred losses worth thousands of crores but is surviving thanks to a government bailout package of Rs 30,000 crore that began in the tenure of UPA-II, and has been continuing under the current NDA government. Sources said the government has infused about Rs 25,000 crore into Air India in the past five years, and this amount could go up to Rs 50,000 crore in the next five years.

Air India has a debt burden of about Rs 50,000 crore and a large part of it is due to the loans taken (about Rs 22,500 crore) for acquisition of 111 aircraft (68 for Air India and 43 for the erstwhile Indian Airlines) in 2005-06.

A financial turnaround plan (TAP) was put in place for the airline in 2012, but the NDA government, after three years in power, is now convinced that the TAP will not succeed in pulling the airline out of its financial woes. Despite the fact that Air India had reported an operating profit of Rs 105 crore in 2015-16, its debts remain insurmountable.