India's new government has outlined plans to sell a minority stake in Air-India next year. The airline is among 40 state-owned companies targeted for partial sell-off in a bid to raise Rs50 billion (US$1.4 billion).

It is not clear how much of Air-India will be sold off but the process could start as early as March 1997. The airline had an equity base of Rs794.7 million at the end of 1995 and assets of Rs11.11 billion. But ICICI Securities, a local consultancy, which audited the carrier for its current fleet renewal programme, argues the true asset value may be as much as 10 times higher, giving the carrier a total price tag of around Rs40 billion.

But Air-India's deteriorating financial situation and India's bureaucracy may deter strategic interest. The Indian government has already attempted to avoid further exposure to the unprofitable carrier by resisting pressure from the US Eximbank to provide government guarantees for its aircraft purchases. The airline made a net loss of Rs2.4 billion in the year to 31 March 1996 - its first for 10 years - and is forecast to lose Rs2.3 billion on sales of Rs40 billion this year. Tough international competition has cut its market share from 35 per cent to 20 per cent in the past five years.

In an attempt to shore up the flag carrier's position, the government is forcing Indian Airlines to codeshare on domestic sectors with Air-India from December. Indian Airlines' flights from Delhi and Mumbai to 11 cities will carry Air-India's codes, while the flag carrier will only put the IA code on domestic sectors. Indian Airlines sources are unhappy as they want reciprocity internationally.

Ravi Prasad

Source: Airline Business