Ravi Prasad NEW DELHI

Despite the fall of the Hindu nationalist-led coalition government, there are hopes that privatisation of Air-India and Indian Airlines could still go-ahead.

The federal cabinet has allocated Rs32.5 billion ($830 million) for Indian Airlines to increase its equity base and authorised it to mobilise funds from the capital markets through an initial public offering. The airline's present share capital of Rs10.5 million is too slender for a company of it size. "The injection of substantial public equity would have to be balanced by a similar injection from the government," says a Ministry of Civil Aviation official.

The plan, based on restructuring proposals coming out of the Vijay Kelkar Committee, is for 10.6% of the equity to be offered to employees and 40.4% to the public. State ownership in the airline would drop to 49%.

The carrier plans to spend the allocated Rs32.5 billion on fleet acquisition. "It will (the funds) will give us a lot of confidence and comfort to go ahead with our fleet renewal planning with earnest. Renewing our fleet is essential," says chairman and managing director Anil Baijal. The Kelkar Committee warned that if Indian Airlines did not replace its ageing aircraft (Boeing 737s and Airbus A300s) and augment its fleet, its market share could fall as low as 11% its current 50% level.

Air-India's board has also approved divestment of 60% of the airline's equity based on proposals by the Divestment Commission. The commission suggested that 40% be sold to a strategic partner, 10% to institutional investors and 10% to employees and retail investors.

Source: Airline Business