Mehar Singh/DELHI Andrzej Jeziorski/SINGAPORE

The privatisation of Air India is under threat, with government departments squabbling over how much of the national carrier should be sold off. India's finance ministry and disinvestment commission are both thought to favour the sale of a big majority holding in the airline, whereas many parliamentarians and the civil aviation ministry want the state to retain a significant share.

The latter is reportedly lobbying for the sale of 25% of Air India to foreign investors, with the government retaining 49% and the balance going to domestic investors. It wants a Rs10 billion ($230 million) cash injection for the airline, including proceeds from the disposal of the state hotel chain, plus the appointment of an overseas adviser and guarantees that Air India would not be renationalised without agreed investor compensation.

A cabinet committee is to decide on the privatisation later this month, with public sector units, including Pawan Hans Helicopters, also up for sale. Members of the Indian upper house recently expressed reservations about the disposal, claiming disinvestment is not viable given Air India's revenue problems and poor customer service and calling for management and board changes.

A key decision concerns the stake to be made available to foreign investors. Media reports claim the prime minister wants to eventually allow up to 74% foreign airline participation. Approval for the privatisation of domestic carrier Indian Airlines includes a strategic stake of up to 25%, but no foreign airline involvement.

Air India has already attempted to improve its financial health, stepping up marketing efforts and attempting to cut its 18,000-strong staff through voluntary redundancies. Civil aviation minister Sharad Yadav recently reported that losses dipped to Rs1.74 billion in 1998-99 from Rs18.11 billion the previous year. Losses for 1999-2000 are expected to be Rs900 million.

Meanwhile, the carrier plans to lease between three and six additional Airbus A310-300s and up to two Boeing 747-300 Combis to replace older types. Aircraft will be taken on three-year dry lease from the fourth quarter, replacing seven ageing Boeing 747-200s and three Airbus A300B4s.

Air India has tried for over a year to sell its -200s , with a new invitation to tender for the aircraft issued on 5 May. Interest is believed to have come from Malaysia's Mofaz Group.

Indian Airlines' fleet-renewal programme is also under way after talks opened with Airbus and Boeing. The state will provide Rs1.15 billion in downpayments for up to 39 new aircraft.

Source: Flight International