MC EXCLUSIVE Govt defers divestment of former Air India subsidiaries amid regulatory hurdles, weak investor sentiment

The Finance Ministry has asked the companies to complete these tasks so that it becomes easier for investors.

The central government has deferred the divestment of Air India Engineering Services Ltd (AIESL), AI Airport Services Ltd (AIASL), and Airline Allied Services Ltd (AAAL), or Alliance Air, as the companies are yet to resolve certain regulatory issues, leading to a decline in investor interest in recent months, multiple government officials told Moneycontrol.

"The strategic sale of Air India subsidiaries has been delayed. Expressions of interest are ready, but some earlier issues need to be addressed in line with guidelines," a government official told Moneycontrol.

Senior government officials told Moneycontrol that investors have raised concerns over the lack of segregation of assets, financials, and non-core components in the Public Sector Undertakings, making it difficult to assess their valuation.

"Certain processes on the ground, such as segregation of manpower, assets and some contracts, have not been completed. It is not about the monetisation part, but internal company-level steps that need to happen first," the first official said.

The Finance Ministry has asked the companies to complete these tasks so that it becomes easier for investors. "Aviation disinvestment will take some time, though the ministry is pushing for it,” the official added.

Another government official told Moneycontrol that a symbolic protest by the employees of AIESL since April has also presented a roadblock for the privatisation of the company.

"Many investors have raised concerns at the roadshows held in May that the symbolic protest by employees could escalate until the company addresses employee concerns," the second official said.

The government now aims to restart the divestment exercise by September, officials said. The original plan was to invite expressions of interest (EOIs) in June 2025 after holding roadshows in May 2025.

Emails sent to AIESL, AAAL, AIASL, the Ministry of Finance and the Ministry of Civil Aviation remained unanswered till the time of publishing.

Employee protests

Since April, AIESL employees have been staging a symbolic protest over issues such as promotion, alleged discrimination against contractual staff, and uncertainty about their future after AIESL's privatisation.

Those protesting belong to the All India Aircraft Maintenance Engineering Union (AIAMEU), which represents nearly 900 AIESL employees on Fixed Term Employment (FTE).

All former subsidiaries of Air India are currently held by Air India Assets Holding Ltd, a special purpose vehicle set up in 2019 for housing Air India's non-core assets and debt.

The divestment process

Last year, the central government organised roadshows in Mumbai for the divestment of AIESL, the country’s biggest maintenance, repair, and overhaul (MRO) company, and received the approval of the concerned group of ministers (GoM) to initiate the divestment process for the company.

These firms were subsidiaries of Air India when the government owned it, till 2021. Following the sale of Air India to the Tata Group, the government decided to divest its stake in them separately.

The divestment of AIESL, AAAL, and AIASL received Cabinet approval in 2017, along with the divestment of Air India. About Rs 3,000 crore was expected to be raised from the sale of these engineering and ground handling companies.

The biggest of the former Air India subsidiaries, AIESL, saw its revenue from operations increase from Rs 1,881.91 crore in 2021-22 to Rs 1,953.40 crore in 2022-23, while its total revenue rose from Rs 1,906.52 crore to Rs 2,029.86 crore during the same period, the company said in its annual report.

The company posted a net profit of Rs 629.51 crore in 2022-23, down from Rs 829.26 crore in 2021-22. It had handled around 450 aircraft, providing line maintenance services to Air India, along with international operators such as Jazeera Airways, Oman Airways, Malaysian Airlines, Kuwait Airways, Tiger Scoot, China Airlines, MA Indo Airlines, Egypt Air, etc, and Indian operators like Air Asia India, Go Air, SpiceJet, and Fly Big.