Air India should be made profitable before it is privatised so that the government can fetch a better value for the national carrier, according to NITI Aayog vice-chairman, Rajiv Kumar.
The suggestion comes after the government’s first attempt to privatise the airline gathered little response from investors owing to their discomfort with the sale conditions and their aversion to buying a loss-making company at a time of high jet fuel prices.
Air India had accumulated a debt of Rs 48,781 crore at the end of FY17. The company documents, however, show that its net losses before exceptional and extraordinary items had been steadily narrowing in the four years until FY17.
Kumar proposed two approaches for disinvesting a loss-making state-owned enterprise, according to a report by the Mint. The first approach is to turn around the company with professional management so that its valuation increases.
Under this approach, the government may bring in a professional board that can run the carrier competitively before it decides to dispose of the assets. Air India reportedly has several assets whose value has not yet been discovered due to the company’s distressed financial situation.
“That is how these assets will fetch maximum value. This approach may very well be tried on Air India,” Kumar added.
Kumar suggests active disinvestment, maybe in small portions at a time, or hiring a strategic investor as the second approach to solve Air India’s disinvestment issue. “Basically, the government is cutting its losses (in this case),” said Kumar.
The government has been keeping the carrier afloat with small packages of capital infusion. NITI Aayog, however, had earlier pointed out that continued financial support to Air India in a mature and competitive aviation market was not the best use of the state’s scarce resources.
According to the report, the government may have to prepare a plan to deal with issues concerning Air India’s large workforce ahead of a potential disinvestment.
“Tackling the huge employee cost without precipitating a labour unrest will be one of the challenges in turning around Air India,” Manoj Kumar, a partner at law firm Corporate Professionals, told the paper.
While the airline has been making losses, the Civil Aviation Ministry believes that Air India’s performance may improve after it is privatised as a similar trend is seen in cases of many global airlines who have been privatised.