Air India’s disinvestment found mention in finance minister Nirmala Sitharaman’s maiden Budget speech and reports suggest the government is serious about an October deadline to sell off the national carrier.
A look at Budget documents show that from 2014-15 to 2018-19, the Modi government invested almost Rs 24,306 crore in the national airline, including budgetary support for its turnaround. Under the first Modi government, investment in Air India peaked in 2017-18, with Rs 6,427 crore injected into the airline. In the 2019-20 budget, the government has allocated Rs 7,000 crore to Air India Asset Holding Company, which was incorporated as a special purpose vehicle (SPV) in 2018. Air India’s debt was transferred to this company under the financial turnaround plan and this money was intended to service loans. In 2019-20, the extra budgetary support to Air India has been slashed to Rs 434 crore – the lowest ever in recent years – which perhaps signals that the new government’s keenness to privatise the carrier.
But even as Air India has received a huge sum from the government, it hasn’t shown much improvement in its financial parameters, despite an improvement in its operational performance. While Air India’s losses in 2017-18 were lower than in 2014-15, they continued to hover above the Rs 5,000 crore mark. Its sister airline, Alliance Air, widened its losses to over Rs 260 crore. A bright spot was perhaps the story of Air India Express, which operates on the lucrative Gulf route among other destinations. It turned profitable in 2015-16 and continued to be so in 2017-18, clocking profits of over Rs 260 crore. Air India has shown an improvement on operational parameters during this period – from passengers carried to departures and even its passenger load factor on its domestic and international operations. But financial resurrection has eluded it.
With the government now looking to sell off Air India by October this year, there may be reasons for investors to consider buying the national airline. With the financial restructuring almost done and its loans hived off into an SPV, an additional boost could come from the disappearance of Jet Airways from India’s aviation scenario. In May 2019, the first month when Jet Airways did not operate any flights, Air India showed the most impressive increase in passenger load factor among bigger airlines such as Indigo, Spicejet and Vistara, as compared to April. With Jet Airways unlikely to be back soon, Air India could potentially gain from the vacuum left by Jet’s disappearance. Civil Aviation Minister Hardeep Puri had informed Rajya Sabha in June that Jet Airways' international bilateral rights were allocated to Air India. These include over 11,000 seats per week on routes connecting India to Dubai and Qatar. In addition, over 3,000 Jet seats were allocated to Air India on the Hong Kong and Singapore routes. Over 4,700 seats on the India-UK route also landed in Air India’s kitty. The national carrier has gained from Jet Airways operational shutdown domestically too. Puri informed Parliament that domestic slots on 22 routes, including those connecting Delhi to cities such as Bhopal, Bengaluru and Amritsar went to Air India. Other slots given to the national airline were on routes connecting Chennai to Bengaluru and Ahmedabad.
So what does this mean for Air India and potential suitors looking to snap up the airline? Almost a third of India’s international passenger traffic is to the United Arab Emirates (UAE) and Qatar. Add the UK, Hong Kong and Singapore to this mix, and almost half of India’s international traffic is on these routes. While Indigo and Spicejet too are scaling up their international operations, lucrative bilateral routes landing in Air India’s kitty could herald a major rise in its passenger load factor on these routes, which in effect could have a positive impact on its future financial performance. Before its closure, Jet Airways carried almost 10,000 passengers to Dubai every week. According to Puri, Air India has been given 5,852 seats on this route till the end of the summer schedule this year. That’s more than half of what Jet Airways was flying every week on the Dubai route from India. While there are many other factors that potential investors will consider while buying out Air India, the business that would come its way by Jet’s closure could certainly be more than just a tantalising prospect to ignore