The efforts are on to sell the Indian Government's majority shareholdings in Air India and Indian Airlines. In September, the Disinvestment Commission drafted a detailed plan to sell the 60% stake in Air India, and finance minister Yashwanth Sinha announced the disinvestment of 51% of Indian Airlines.

The commission suggests that a strategic partner be sought for Air India through competitive bids for an offering of new shares. "The government should initiate a process of finding a strategic partner through an issue of fresh equity to the face value of Rs7.7 billion [$181 million]", says the commission report.

The government could offload a further 10% of its shares to domestic institutions and discount 10% to employees and retail investors. The commission says, however, that a quarter of the equity earmarked for strategic partners should be held by Indian nationals.

But the commission believes the government should inject Rs10 billion into Air India before the divestment. With the fresh equity of Rs7.7 billion, this would boost the paid-up capital of Air India to Rs19.24 billion, giving it the leverage to mobilise funds for the modernisation and expansion of its fleet.

Disinvestment Commission chairman G V Ramakrishna says that a strategic partner for Air India would bring in the necessary financial, management and technical support for the airlines. "There is not much future for [Air] India if left to itself, and even government support to the extent of Rs20 billion will not enable it to survive," he says.

The ban on foreign airline participation in domestic carriers should not prevent Air India from finding a partner as there are no restrictions on investment in an international airline. "Even Singapore Airlines, which has been prevented from entering the Indian aviation sector, could be an eligible bidder," he adds.

Air India managing director M P Mascarenhas supports privatisation. "The fate of the airline is bleak unless it is privatised and freed from government controls," he says. He demands that, failing privatisation, unprofitable and social service routes be subsidised by the government.

Meanwhile, in an effort to turn around Indian Airlines, the government will "restructure its capital base and undertake a phased disinvestment over the next three years, bringing the government's equity to 49%," says Sinha. Trade unions have strongly opposed the government's moves.

Source: Airline Business