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Jan 12, 2018 10:50 AM IST | Source: Moneycontrol.com

EXCLUSIVE | Jayant Sinha Interview: Govt open to retaining minority stake in Air India

Minister says the stake sale should not take more than six to eight months with the legal closing and transfer of assets taking another few months.

Dhirendra Tripathi @dtrips

The government is open to retaining a minority stake in Air India even as it pursues sale of a strategic holding in the loss-making carrier, Moneycontrol learnt today in an exclusive interview with Jayant Sinha, union minister of state for civil aviation.

The Union Cabinet on Wednesday allowed foreign direct investment of up to 49 percent in Air India. This decision means that foreign airlines too can buy a stake in the fully state-owned company under the total FDI limit of 49 percent. The foreign investor will need the approval of the government. FDI of up to 49 percent is already allowed in private Indian airline companies under the automatic route.

“So for instance, just to make it perfectly clear. Suppose the government were to disinvest 60 percent of Air India. If we have disinvested 60 per cent of Air India, 60 percent would be with the private sector, 40 percent would remain with the government. OK. Now we have said that no more than 49 percent could be in foreign hands. So 49 percent of the 60 percent, for instance, could be with the foreign player, then 11 per cent could stay with an Indian player and 40 per cent could stay with the government. So the 51 percent would be met,” Sinha told Moneycontrol.

The government has so far not clearly specified how much stake it would sell in Air India other than the fact that it wanted to sell a strategic stake. Whether the government would exit the company or retain a minority share has not been very clear so far. Sinha’s statement indicates the government could look at retaining a minority stake with a majority stake of not more than 49 per cent going to a foreign player.

“So, on one hand we are saying that this is a strategic disinvestment which exceeds 51 percent and at the same time we are saying FDI cannot exceed 49 percent. So they are two different things. You cannot combine the two together in a somewhat jumbled-up way,” he said.

AirIndia_Timeline

Sinha said the stake sale by the government should not take more than six to eight months with the legal closing and transfer of assets taking another few months.

So far, Interglobe Aviation, which runs IndiGo Airlines, is the only airline company to have officially expressed its 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 because it is likely to rile the unions 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 though Sinha was non-committal on the quantum of debt the government would be willing to absorb. He said an audited mechanism, headed by Finance Minister Arun Jaitley, would take a decision on that based on the advice coming from the transaction advisor Ernst & Young.

The edited excerpts of the interview:

Q. On Wednesday, the Union Cabinet passed a significant policy decision of allowing FDI, including investment from a foreign airline, up to 49 percent in Air India. What sense do we derive out of it? Can we say the government may be OK with a less than 100 percent privatisation of the airline?

A. I think we need to clarify one thing first just so that nobody is confused about it. Yesterday’s decision related to FDI. And that decision was that directly or indirectly, foreign ownership of Air India should not exceed 49 percent. That was the decision on FDI. Government has already said that we are in a strategic disinvestment process. In a strategic disinvestment process, the government will divest 51 per cent or more of Air India. So we have already said that we will divest more than 51 percent. It may be 51 percent or it may be more. That will be decided by the audited mechanism which is headed by the honourable Finance Minister. As and when the divestment happens and an ownership stake is purchased by a private player, then in that ownership no more than 49 per cent of Air India’s ownership, directly or indirectly, can be held by foreign investors. So on one hand we are saying that this is a strategic disinvestment which exceeds 51 percent and at the same time we are saying FDI cannot exceed 49 percent. So they are two different things. You cannot combine the two together in a somewhat jumbled-up way. You have to be clear what one means and what the other means.

So for instance, just to make it perfectly clear. Suppose the government were to disinvest 60 percent of Air India. If we have disinvested 60 percent of Air India, 60 percent would be with the private sector, 40 percent would remain with the government. OK. Now we have said that no more than 49 percent could be in foreign hands. So 49 percent of the 60 percent, for instance, could be with the foreign player, then 11 percent could stay with an Indian player and 40 percent could stay with the government. So the 51 percent would be met. Do you understand how that would work? So the two are different ways of looking at the divestment process.

Q. By when do you expect the entire Air India disinvestment process to be over?

A. We have said over and over again that from now we expect it to take another six to eight months for the winning bidder to be announced. And thereafter, it will take another few months for the legal closing and the transfer of assets to actually happen.

Q. Do we have some clarity now on what quantum of Air India’s debt the government will take on? Is it going to be entire debt or part of it?

A. Those are decisions that will be made by the audited mechanism under the advice from the transaction advisor which is EY.

Q. The issue of carriers shifting to terminal 2 from terminal one of Delhi airport has been hanging fire for quite some time now. The airport operator has been asking some of the private airlines to shift to terminal two but at least one, IndiGo, is adamant on not shifting and the matter is now with the Delhi high court. Don’t you think the government could play a more active role in this so that the expansion work at T1 could go ahead?

A. The government has been playing a very active role in the Delhi airport masterplan and we have been working with all the parties concerned for many, many months now to find an amicable solution. Unfortunately, we have not been able to reach an amicable solution in this situation and the reasons is because IndiGo and Spicejet effectively cannot come to an agreement on exactly how operations will be shifted to T2. T1 right now is already over its planned capacity and there is a significant expansion of T1 that is required which will mean reducing the capacity of T1 even further. And because the capacity of T1 is going to come down so much, we have to move operations to T2. Now, which operations go to T2 and when they go to T2 is something that Spicejet and IndiGo cannot agree upon. And that is why we are having this dispute over this matter. But it’s very clear that we have to reduce operations in T1 and increase operations in T2 and that’s what we can’t come to a conclusion around. We have been in the middle of that discussion but because we have two parties right now which cannot agree, therefore, it has gone to the High Court.

Q. Seeing the success of UDAN (Regional Connectivity Scheme that’s called UDAN, an acronym for Ude Desh Ka Aam Nagrik), do you think its under-funded?

A. Well as far as UDAN round one is concerned and in UDAN round one, we have activated some 25-30 airports and for that we have estimated for the routes that will originate and will terminate at these airports, it is estimated that it will cost in subsidy terms about Rs 200 to Rs 300 crores. And the current funding for UDAN is sufficient to cover that. Now, in UDAN round two, we are going to cover another 40- plus airports and many, many more routes as well. And for that we will need additional financing for that. We are working through the process so that we will have additional support for round two.

Q. Could we see a higher levy being imposed on tickets to fund UDAN?

A. We are working through multiple alternatives for that.

Q. Do you think the time has come to have a more focused approach towards having low-cost airports in the country?

A. We are already working on many airports and doing them in a bare bones, no frills way so that instead of spending many hundreds of crores in building an airport, we can do it in a very reasonable, affordable way between let’s say a Rs 100 to 200 crore. So we are looking at that model and we have in fact come out with various different approaches for that. So as and when we need to do that, we will certainly do it and come out with a no-frills airport.

Q. Could we expect some relaxation in norms to attract more private participation in UDAN scheme?

A. We have a very open and liberal policy regime for airports right now and so we are very much hoping that the great built out of airports that’s required in India as we go from about 200 million passenger trips which is what we have right now to let’s say a billion passenger trips, which is what we will have 20 years from now. So that expansion, which many people have estimated, experts have estimated is going to cost between Rs 3 lakh crore to Rs 4 lakh crore that the vast majority of it is done by and funded through the private sector.

Q. Privatisation of existing airports in the last few years hasn’t taken off.

A. Private sector airports are doing extremely well and the vast majority of our air traffic actually moves through our five to six private airports -- Delhi, Mumbai, Bengaluru, Hyderabad, Cochin. Those have been very, very successful. We are working through an approach for existing brownfield airports and we have offered them up for bid and we are revising the whole bidding process for Jaipur and Ahmedabad. So we want to make it sufficiently attractive, interesting for the private sector to take over. In addition to that, on the greenfield side -- whether it is Goa, whether it is Navi Mumbai, or new airports being considered in Pune and Guwahati and so on -- those airports will actually come under the greenfield PPP (public private partnership) model.

Q. What about Chennai airport?

A. Chennai airport, we are building a new terminal there. That will be of course an AAI (Airports Authority of India) terminal because it is an AAI airport right now. But we are in discussions with the government of Tamil Nadu to see whether we can build an entirely new greenfield airport for Chennai which will be required in the next 10 years or so.

Q. A lot of smaller airlines have complained that allotment of slots and bays at private airports is not very transparent. What is your view on that?

A. That’s not true. Allocation of all resources at private airports by law has to be done in a very fair, transparent and open manner. Of course, there’s a separate issue which is that we don’t have enough parking bays and slots, particularly in Mumbai. In fact, it is not possible to give equal either parking bays or slots right now because Mumbai is completely saturated as of now. But whenever there is any allotment, that allotment has to be done in a fair and transparent manner. And in fact, as we were talking about earlier as far as Delhi airport is concerned, if airlines believe what they are being asked to do is not fair and transparent, they do and they bring it to court. So of course litigation and legal disputes are what happen when people don’t agree with certain decisions.

Q. Prime Minister Narendra Modi recently flew a seaplane. When can we see a policy on commercial seaplane services?

A. We are working through the modalities of all of that. Seaplanes are a very interesting and very high potential alternative for air transportation in India. The question of course with seaplanes is two-fold. One, safety with a single engine, fixed wing aircraft and second obviously, is to find places where they can land and where they are safe and secure. So we are working through the modalities of that right now. We are seeing what should be our policy for water drones, and we have an expert committee looking at single engine, fixed wing aircraft as well as single engine helicopters to see what their safety record is and what should be the overall safety protocols and regulations that enable us to fly these kinds of planes safely.

(The video of this interview will run later today.)
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