India open to listing Air India after failed divestment: government source

By Nidhi Verma and Manoj Kumar

NEW DELHI (Reuters) - India is open to listing ailing state carrier Air India, a government source said on Wednesday, after failing to attract buyers for a 76 percent stake in the company.

While the government is considering several proposals related to reviving the divestment process, it will not allow complete foreign ownership of the airline, the source said, declining to be named before a final decision is reached.

One of the proposals could involve the government retaining a share in the debt-laden carrier and selling it at a later date so it can capitalise on any financial upside that may occur from listing the airline, the source said.

The government may also consider reducing the debt it passes on to potential buyers and restructuring the large workforce, another senior government official told Reuters.

"We will take a decision in next few days on changing conditions before inviting fresh bids," the official said, adding that the government is committed to selling its stake in the national carrier in the current financial year but could defer it if it fails to get the right price.

The government in March finalised plans to divest a majority stake in Air India and offload about $5.1 billion of its debt, but prospective buyers stayed away, with some citing onerous terms as a reason for their lack of interest.

The lack of buyers in a booming aviation market underlines the challenges the government faces in fixing the debt-laden national carrier, and is a setback for Prime Minister Narendra Modi's credentials as a reformer willing to step away from running money-losing businesses.

Air India, known for its Maharaja mascot, has some of India's most lucrative international and domestic landing and parking slots that are key for airlines.

While a buyer would have got management control and gained access to more than 2,500 international slots and over 3,700 domestic slots, it would also have been required to take on Air India's 27,000 employees, 40 percent of whom are permanent staff.

The terms had also stipulated that the government would have continued to hold a 24 percent stake, with the need for the bidder to abide by conditions, not yet detailed, designed to safeguard employee interests.

The government will soon arrange a bank loan for Air India, the second official said, to meet working capital needs and buy time for a few months before inviting fresh bids.

"The heavens would not fall if the stake sale is deferred to the next fiscal year," the official said adding that ahead of national elections next year, the government could not take the risk of selling the national carrier at a low price.

This could cost the government politically and hurt the process of further privatisation of other state companies, he said.

(Writing by Aditi Shah; Editing by Alex Richardson/Keith Weir)