Failed Air India plans reveals dent in India’s privatisation initiative

India’s plans to privatise large parts of the industry have been derailed by the botched attempts to sell Air India according to experts.

Jayant Sinha, aviation minister, said: “ Whatever happens now to Air India depends on market conditions and will take years before we can contemplate selling Air India again.”

Socialist policies have left the government in control of 331 companies selling assets worth over £500bnfrom sex toys to tea and telecoms and from 1999 to 2004, 12 state companies were sold off, helping boost their weighted average return on capital from 5 per cent a year to 25 per cent.

Rising oil prices have knocked the finances of private carriers and made them wary of big investments and so the ministers blame market conditions for Air India flop.

Indigo, the big private airline and regarded as the leading domestic bidder for Air India announced a 73 per cent fall in quarterly profits because of high fuel costs.

The private bidders, however, were put off by sale terms requiring the government retain a 24 per cent stake and that the company be sold with $5bn of its total debt, the potential buyer would have had to take on airline’s 27, 000 employees. The company has made losses for the past decade and holds a total of $7.8bn in debt.

The government’s proposed stake sale in Air India failed to attract any initial bidders when the deadline for bidding ended on May 31.

Air India needs to spruce up through a fresh cash injection, cost cuts and non-core asset sales.

Selling the state carrier was key to Modi’s plans to help keep the fiscal deficit at 3,3 per cent of GDP.

Air India had sic subsidiaries –three of which are loss-making with assets worth about $4.6bn and $1.24bn worth of real estate including two hotels, where ownership is split amount various government entities. Air India has been losing domestic market share to rapidly expanding low-cost operators like InterGlobe Aviation Ltd’s Indigo and SpiceJet Ltd.