India is considering selling a majority stake in Air India to a strategic partner after a $3.6 billion bailout failed to turn around the loss making national carrier, people with knowledge of the matter said.
The proposal includes reviving Air India within five years of selling a 51 percent stake, the people said, asking not to be identified as the information isn’t public. Talks are at an initial stage and presentations have been made to the finance ministry and the prime minister’s office, they added.
The government isn’t planning to sell 51 percent stake in the carrier, Civil Aviation Secretary R.N. Choubey said in New Delhi. D.S. Malik, a spokesman at the Ministry of Finance declined to comment. Neither did Dhananjay Kumar, Air India’s spokesman.
Prime Minister Narendra Modi’s administration will have to tackle the airline’s about $7 billion of debt to make Air India attractive to investors, according to Mark Martin, founder of Dubai-based Martin Consulting LLC. In comparison, Deutsche Lufthansa AG has less debt while its revenue is about 11 times that of the Indian carrier. Air India has been unprofitable for a decade with taxpayers bailing it out in the past six years.
“It’s a welcome step but premature,” said Martin. “The government should first set its house in order by amortizing and restructuring the debt before it tries to find someone who will buy 51 percent.”
India’s finance ministry wants the plan to be discussed in detail to avoid a situation where there are no buyers after the offer is announced, the people said.
The carrier’s share in the local market has shrunk to 14 percent from 35 percent a decade back, placing it third in the national ranking. The company made an operating profit of about 1 billion rupees ($15 million) in the year through March 2016, aided by a drop in oil prices. It still posted a net loss of 38.4 billion rupees, according to the government.
©2017 Bloomberg L.P.