Here’s an interesting story that has come from several anonymous sources via the Reuters news agency – Air India is about to be sold to the highest bidder by the Indian government. If true, the news could signal the end of Indian state airline, Air India, or at least the sell and break up of the aviation group to private entities.
Apparently, Prime Minister Narendra Modi is keen for a quick sell and has pushed the government to explore ways to offload the USD $8.5 billion debt-ridden airline from government control. Modi has reportedly said that government has no business getting involved in hospitality or travel businesses.
Air India has been under government control since 1953 when the airline was nationalised. The carrier was originally created in the 1930’s – Not only pioneering civil aviation in India but also creating a huge “multi-faceted organisation” with fingers in many pies. Air India says it “occupies a special place in the global and Indian aviation scenario”.
But the airline has been unprofitable for years, sucking up USD $3.6 billion in emergency government funding since 2012. Anyone who has ever had the misfortune of flying with Air India will know it as a bloated, disorganised and slightly desperate company.
Yet despite its size – Air India employs 40,000 employees, owns six subsidiaries and controls USD$1.24 billion worth of real estate (including two hotels), the airline now only controls 13% of domestic air services. As the Indian aviation market has slowly opened up to deregulation, competitors such as IndiGo and Jet Airways have seized market share.
The problem for Modi will be how to divest such a huge company – the last thing the government will want is to sell off the crown jewels and be left with the unprofitable parts of the company. IndiGo has suggested it would be interesting in buying Air India’s international operations and the airline’s low-cost subsidiary – Air India Express.
Meanwhile, the government has met with Indian mega-company Tata Sons as a possible buyer of Air India. Not only did Tata control the airline before it was nationalised but it also has the financial backing and expertise to turn the carrier around. But Tata is already involved in two other airline joint ventures – whether, Tata has the appetite to take on a project this huge is unknown.
This all comes as India is undergoing a huge transformation in the aviation sector. Modi has already liberalised India’s rules on foreign direct investment or FDI. The change in policy allowed Etihad to buy a stake in the Indian airline, Jet Airways in 2012. Since then Tata Sons has started two joint ventures with foreign carriers – Vistara with Singapore Airlines and AirAsia India in collaboration with AirAsia.
However, Modi’s changes to the FDI will now allow 100% foreign-owned airlines to open up shop in India. It’s an opportunity that Qatar Airways hasn’t been able to ignore. The Doha-based airline is said to be in the advanced stages of starting a domestic Indian subsidiary. Whether the new airline is branded as Qatar Airways or something different is still unknown.
If the latest rumours are true, the government are said to be about to bring in independent consultants shortly to help with the sell of Air India – either as a whole or in parts.
