Can Air India survive its botched privatization?

India may have to completely let go of its national airline if it wants to save it.The Indian government's att...

Posted: Jun 15, 2018 12:34 PM
Updated: Jun 15, 2018 12:34 PM

India may have to completely let go of its national airline if it wants to save it.

The Indian government's attempt to sell 76% of Air India has so far failed to drum up any interest.

It now faces a stark choice: Continue to pump in billions of dollars of taxpayer money to keep the loss-making airline flying, or allow it to be taken over entirely and possibly broken up.

"In the current framework, the airline cannot survive without government-injected funds," Vaidyanathan Krishnamurthy, a professor of finance at the Indian School of Business, told CNNMoney. "It will continue to bleed cash."

Air India is expected to lose around $2 billion over the next two years, according to the Centre for Asia Pacific Aviation (CAPA). The airline has been kept alive in recent years by a $4.5 billion government bailout in 2012.

Related: India tried to sell its national airline. It got zero bids

Prime Minister Narendra Modi has been trying to privatize debt-ridden Air India for more than a year in order to save the government billions, but its conditions for the sale were too rigid for potential buyers.

Those conditions - most of which analysts say must change - included the government retaining a 24% stake and an order that the new owner couldn't lay off any employees or merge Air India with another airline.

The government seems prepared to soften its stance on at least one of those conditions. Subhash Garg, a senior official at India's finance ministry, told Bloomberg that the government's stake in the airline "can be re-examined."

Garg did not respond to requests for comment on the government's plans. Air India did not respond to requests for comment.

Related: Air India completes historic first flight to Israel over Saudi Arabia

The government also wanted buyers to take on $5 billion of Air India's debt.

Krishnamurthy said the government should consider a separate sale of real estate owned by Air India to cut its overall debt of more than $7 billion.

"Reducing debt also makes the sale attractive," he added.

If it fails to find a buyer soon, the government will have to decide how much longer it can afford to keep supporting the airline.

Providing the huge subsidies needed to pay Air India's nearly 17,000 staff and meet rising fuel costs could even take the edge off India's economic growth by depriving other programs of funds, analysts have warned.

"The government will be faced with the difficult choice of cutting spending or running a bigger budget deficit," Shilan Shah, India economist at Capital Economics, wrote in a recent note.

A bigger budget deficit could inflate India's borrowing costs, further damaging the economy.

Related: This Indian airport will fly you to the terminal for $65

Despite all its troubles, Air India still accounts for around 17% of all international traffic in India, which is projected to become the third largest aviation market in the world by 2026.

The airline carried almost 19 million passengers during the last fiscal year.

"A stronger, restructured Air India can deliver significant indirect benefits to the Indian economy," analysts at CAPA wrote in a recent note.

The airline is currently run by a board of senior Indian bureaucrats and falls under India's aviation ministry.

If the Modi government is forced to keep the airline, it should at least stop trying to run it and follow the lead of Air India's peers like Malaysia Airlines, Krishnamurthy said.

"[The government should] hire somebody from the airline industry as the CEO who has experience in turning around sick airlines," he suggested. "Run it for all practical purposes as a non-government entity with minimum interference ... you need specialists here to do the job."

Mississippi Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 113876

Reported Deaths: 3238
CountyConfirmedDeaths
Hinds7894177
DeSoto693279
Harrison512983
Jackson450384
Rankin389486
Madison381293
Lee351479
Forrest300778
Jones289184
Washington256499
Lafayette248343
Lauderdale2437134
Lamar224238
Oktibbeha200854
Bolivar200477
Neshoba1842111
Lowndes178362
Panola169139
Leflore165887
Sunflower160949
Warren154355
Monroe148172
Pontotoc146119
Marshall141229
Lincoln138957
Pike138256
Copiah136936
Coahoma124936
Scott124929
Yazoo121733
Grenada121638
Simpson121249
Union117425
Tate116039
Leake114640
Holmes114460
Pearl River112959
Itawamba112225
Adams107343
Prentiss104819
Wayne100821
Alcorn98712
George97918
Covington97026
Marion94642
Tippah88922
Newton85627
Chickasaw84026
Tallahatchie84025
Winston83321
Hancock81628
Tishomingo80041
Attala79026
Clarke74351
Clay68421
Jasper67917
Walthall63827
Calhoun62212
Noxubee59617
Smith59116
Montgomery54323
Claiborne53716
Tunica52917
Yalobusha52614
Lawrence51214
Perry48723
Carroll48012
Greene47318
Stone46414
Humphreys42816
Amite42113
Quitman4196
Jefferson Davis40511
Webster37013
Wilkinson33720
Benton3335
Kemper32215
Sharkey28314
Jefferson27510
Franklin2403
Choctaw2056
Issaquena1074
Unassigned00

Alabama Coronavirus Cases

Confirmed Cases: 155915

Reported Deaths: 2674
CountyConfirmedDeaths
Jefferson22988375
Mobile16788315
Tuscaloosa10235140
Montgomery9978197
Madison922894
Shelby727463
Baldwin661569
Lee651765
Marshall437249
Calhoun422461
Etowah421450
Morgan407135
Houston371734
DeKalb336029
Elmore317353
St. Clair289142
Limestone279730
Walker275593
Talladega263635
Cullman239925
Lauderdale218042
Jackson212515
Franklin203231
Autauga203030
Colbert198731
Russell19283
Blount191125
Dallas186327
Chilton185832
Coffee173211
Escambia172230
Covington171429
Dale166551
Chambers134343
Clarke133617
Pike132713
Tallapoosa131387
Marion107129
Barbour10129
Butler100240
Marengo100222
Winston91913
Geneva8617
Lawrence83732
Pickens83618
Bibb82514
Randolph82016
Hale75830
Clay73612
Washington73412
Cherokee73114
Lowndes70428
Monroe64510
Henry6436
Bullock63917
Crenshaw60330
Perry5856
Fayette56913
Wilcox56412
Conecuh56013
Cleburne5518
Macon53020
Lamar4745
Sumter47221
Choctaw39012
Greene34216
Coosa2033
Out of AL00
Unassigned00
Tupelo
Overcast
54° wxIcon
Hi: 65° Lo: 54°
Feels Like: 54°
Columbus
Overcast
54° wxIcon
Hi: 70° Lo: 56°
Feels Like: 54°
Oxford
Overcast
48° wxIcon
Hi: 61° Lo: 49°
Feels Like: 46°
Starkville
Overcast
50° wxIcon
Hi: 66° Lo: 52°
Feels Like: 50°
WTVA Radar
WTVA Temperatures
WTVA Severe Weather