Air India divestment made easier as foreign airlines can now own 49% in it

The Union Cabinet on Wednesday gave a much-needed boost to the government’s plan of divesting its stake in Air India by giving its approval to allow foreign airlines to own up to 49 percent of the loss-making national carrier.

Foreign airlines were so far barred from owning any share in Air India, even though they were allowed to have up to 49 percent stake in other Indian airline companies. This restriction has now been removed.

To be sure, the 49 percent cap on the holding of foreign airlines in Air India is a part of the total permissible limit of 49 percent on foreign investment in the carrier.

Any foreign airline wishing to pick up a stake in Air India will first have to take the approval of the government. However, this is a superficial clause since the government is the one selling the stake and it would be only too happy to sell a 49 percent stake to a foreign airline.

Currently, foreign investment of up to 100 per cent is allowed in Indian airlines, with a ceiling of 49 percent on holding by foreign airlines. Foreign investors, including foreign airlines, do not need prior approval for holding up to 49 percent in an Indian carrier.

Substantial ownership and effective control of Air India shall continue to be vested in an Indian national, a government release said. The divestment of the government’s stake could take another 3-6 months.

So far, Interglobe Aviation, which runs IndiGo Airlines, is the only airline company to have officially expressed intent to buy the national carrier.

Air India made a loss of Rs 4,310.65 crore in 2015-16, adding to its Rs 6,280.42 crore loss in the previous financial year. The airline, which is completely owned by the government, is weighed down by a debt of around Rs 52,000 crores.

Divestment of stake in Air India is a hot potato and is being driven by no less than the Prime Minister’s Office. The government has appointed all the necessary advisors to value the airline and advise it on the stake sale.

It is almost a given that the government will have to absorb much of Air India’s massive debt to entice enough interest from any private sector company. A special purpose vehicle (SPV) will be formed, in which all the real estate and artefacts belonging to the airline will be housed, according to a ministry official.