Air India divestment: Subsidising airline not sustainable, says Capa report

The national carrier has a debt burden of more than Rs 52,000 crore

Subsidising Air India by pumping in hundreds of millions of dollars is neither sustainable nor desirable, aviation think tank CAPA said today, the day when the government decided to disinvest its stake in the carrier.

The national carrier, which has a debt burden of more than Rs 52,000 crore, is staying afloat on taxpayers' money.

"Subsidising Air India to the tune of hundreds of millions of dollars a year is neither sustainable nor desirable for a government which has so many other pressing economic and social priorities," CAPA said in a report today.

The government's role as a major operator in the aviation sector through its ownership of Air India and the Airports Authority of India will continue to be a negative influence on policy outcomes, the report further noted.

CAPA also said that in such a highly competitive and challenging environment, Air India cannot continue to be funded by taxpayers to fight private capital.

"The national carrier has already absorbed USD 3.75 billion of equity from the government with no end to the need for subsidies in sight," it added.

The Union Cabinet today gave "in-principle" approval for Air India disinvestment and the modalities are to be decided by a group of ministers.

The CAPA report, released before the announcement of the Cabinet decision, said the government appears willing to consider privatisation of Air India, "a far-reaching and highly positive reform".

According to the report, the airline's small operating profit in financial year 2016 was viewed in some quarters as a sign that it had turned around.

"While there have been some improvements in its operating and commercial performance, the company does not yet have a viable business model or a clear long term direction. And it remains hamstrung by massive debts," the report said.

Further, CAPA said the strategy should be to deleverage Air India's balance sheet significantly before a business case for privatisation is considered.

Hiving off its low cost arm Air India Express and divesting its ground handling subsidiary Air India Air Transport Services Ltd could be among the effective restructuring measures, it added.