The government's decision on Wednesday allowing foreign airlines to invest in Air India is expected to draw more bidders for its sale and maximise the value of the national carrier, claim industry experts.
The government in a statement on Wednesday said it is doing away with the restrictions and allowing foreign airlines to invest up to 49% under approval route in Air India, subject to certain conditions including that substantial ownership and effective control should continue to stay with Indian national.
Industry insiders said the development could be the fallout of the less-than-expected enthusiasm from the bidders in the past few months.
The policy regarding the limit of 49% foreign direct investment was earlier confined to the private scheduled and non-scheduled carriers and not to Air India, thereby implying that the foreign airlines could not invest in it.
The move is expected to clear the way for Singapore Airlines and Tata Group-backed Vistara to bid for Air India. At the same time, other Indian carriers like IndiGo or Jet Airways can tie up with a foreign carrier for investment in Air India.
Gulf-based Qatar Airways had already shown interest in investing in carriers in India.
Aviation consultancy firm CAPA said that the decision ends uncertainty about the issue and should send a positive signal t global investors. CAPA adds that it expects to see 4-6 serious bidders for Air India, including significant interest from foreign airlines.
Devesh Agarwal, a Bengaluru-based aviation analyst, said it appears that the government has not received an acceptable response to its initial efforts to sell Air India. "This sensible move allowing FDI in Air India will draw more bidders, maximising the value for the national carrier," he said.
Jitendra Bhargava, former executive director of Air India and author of the book 'The Descent of Air India', said the government has to realise that it is not selling a hot product, but something which has a huge debt, public perception, etc. "The government has realised this and has done the right thing by removing the restrictions," said Bhargava.
The development comes days after a parliamentary panel said that it is not an appropriate time to go for Air India's privatisation, which should be given at least five years to revive and its debt is written off. The panel is also understood to have concluded that the equity infusion in Air India, as part of the turnaround plan, was made on a "piece-meal basis", adversely affecting its financial and operational performance and "forcing" the airline to take loans "at a higher interest rate to meet the shortfall".
Air India has a total debt of about Rs 48,877 crore at the end of March 2017, of which about Rs 17,360 crore were aircraft loans and Rs 31,517 crore were working capital loans. The airline is expected to report a net loss of Rs 3,579 crore for 2017-18, as per Budget estimates projected for 2017-18 from a provisional net loss of Rs 3,643 crore for 2016-17.
It is projected to increase its operating profit to Rs 531 crore for 2017-18 from a provisional operating profit of Rs 215 crore for 2016-17, as per latest figures tabled in the parliament.
Meanwhile, reacting to the development, Singapore Airlines said it will keep options open on Air India. "Our priority is further expansion of Vistara. However, we will keep our options open with respect to the proposed disinvestment of Air India," Singapore Airlines said in an e-mailed statement to PTI.
Singapore Airlines owns 49% stake in Vistara, while the remaining shareholding is with Tatas.
WILL THE DEAL FLY?
- Foreign airlines can now invest up to 49% under approval route in Air India
- However, substantial ownership and effective control has to be with Indian hands
- Earlier, the policy was only for private carriers
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