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Indian Government Announces 100 Percent Sale of Air India
After months of speculation and a previous failed attempt at privatization, there finally is a confirmation of sorts in the ever-lengthening saga of Air India’s privatization that everyone knew already. The civil aviation minister of India Hardeep Singh finally announced that the government is looking to sell 100 percent of the airline.
This point is critical to having a successful round of bids in this second attempt at privatization. One of the reasons it first failed the first time around was that the government insisted on retaining a share in the airline. This caused a considerable amount of concern among potential bidders with many believing that the Indian government would use that ownership to try to continue to exert influence on the airline. While there is no doubt the government will still try to manage Air India affairs after privatization it will be a little more difficult if there is no direct ownership.
This does bring up another problem, there are a lot of benefits Air India receives as the state-run carrier in the country. It has prime slots and permissions to fly a very expansive international route network. It remains to be seen how current airlines in India will deal with Air India being sold off along with all the prime benefits of being a state carrier now going to the private owners. If the government were to claw back some of those benefits and dole them out across carriers it also makes Air India then less attractive when it needs all the help it can get.
Huge Debt Pile
Besides potential bidders having to worry about government interference there also is Air India’s huge debt pile that is sitting there. It’s gotten so bad that the airline may actually have to shut down if the second privatization attempt fails. Many believe it is not feasible for the government to keep bailing out Air India with taxpayer money.
The huge debt pile has gotten attention though and the government is creating a special purpose vehicle to offload some of that debt to make the airline more attractive to bidders. Out of Air India’s $11 billion in debt it is expected that around $7 billion will be excluded to make the airline more favorable for potential buyers.
Foreign Ownership Limits
Another potentially limiting factor is the current requirement that Indian airlines have the majority of shareholders within the country. This kind of limit on foreign ownership is not unique and can be seen across many airlines all over the world. However, it is rumored that the Indian government is considering relaxing foreign ownership restrictions in order to appeal to a broader group of bidders.
It really feels like this has been going on forever and it really has been, but finally, there are some official statements regarding the matter. None of this really means anything right now since bidding hasn’t started but it is the equivalent to beginning to form the ideas of potentially having a birthday party for your birthday three years down the road. There still is a long way to go and there is no doubt once bids are made public there will be a huge mess to deal with.
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