Air India Privatisation: Lessons from the Past
The decision to privatise Air India (AI) is absolutely well-timed. A large swathe of the Indian middle-class is increasingly impatient at having to foot the bills for excesses and corruption of politicians, policy-makers, bankers and others. Let’s face it; we have been carrying the burden of this white elephant for a long time without realising it, since bailout funds released by the exchequer cannot easily be correlated to increased taxes. The government has decided to set up a committee, headed by finance minister Arun Jaitely, to explore disinvestment options for Air India and its five subsidiaries and decide the quantum of divestment (100%, 74% or 51%). The Tatas, who founded and built AI into a top airline (only to have it nationalised by prime minister Nehru in 1953) are, naturally, front-runners to acquire the now bloated and troubled airline. However, it is important that the National Democratic Alliance’s (NDA’s) mistakes (in 2002) should not be repeated this time around. For starters, AI owns prime properties around the world which need to be liquidated to reduce its gargantuan debt burden of Rs52,000 crore and make it more attractive. AI has been making losses for a decade and is living off a Rs30,231-crore bailout sanctioned by the United Progressive Alliance (UPA) government in 2012. Nearly Rs24,000 crore of this has been disbursed without even a plan or effort to reduce the debt burden. Over time, its market share has shrunk to 14% of the domestic traffic and 17% of the traffic from India. The UPA government was primarily responsible for pushing AI deep into the red through the reckless purchase of aircraft. The Central Bureau of Investigation (CBI) is understood to be investigating those deals. But three years after the NDA has taken charge, there is still no attempt to cut costs, shed assets and reduce the taxpayers’ burden. Consider this. As recently as May 2017, the Times of India reported that AI had floated a Rs3.5 crore tender to convert its iconic building at Mumbai’s Nariman Point into an art-museum to house its precious art collection which, apparently, includes the works of VS Gaitonde. Tedric Thompson Jersey
AirAsia India says GST to shave off Rs 400 crore from airlines
Low-cost carrier AirAsia India today said the new tax regime will leave the aviation industry poorer by about Rs 400 crore annually if the government does not roll back the levy. “On an average, an operator will have to pay an additional Rs 10-12 crore per aircraft in additional levies, which include the 5 per cent duty on plane imports. This will put an additional Rs 400-crore tax burden on the airlines that lease out planes,” AirAsia India managing director and chief executive Amar Abrol said here. But he said the airline has decided not to pass on this additional burden to customers as it expects the government to rollback the duty. “The problem is that credit set-off of 3 per cent is available only on services and not on purchase of machinery or aircraft imports. Overall, it seems to be a negative impact and the details are being worked out,” he said. However, the 1 per cent reduction in taxes on economy ticket to 5 per cent in GST is good for the industry, he said. “As of now there is 5 per cent levy on aircraft imports. The industry is discussing with the aviation and finance ministries for exempting this. We will also have to pay 3 per cent GST on lease rentals but that is is available for credit set-off,” Abrol said. The three-year-old airline closed last fiscal with a revenue of Rs 1,000 crore and Abrol said he hopes to cross that number by December this year as the company will be deploying four more planes by then. “We are getting our 11th plane this week, which will be deployed from August 1. By Diwali, we will have three more. This should help us increase frequencies,” he said, adding the airline hopes to have the magical 20 planes by 2018 Diwali. Meanwhile, the airline announced adding Bhubaneshwar to its list of destinations and also adding six new routes connecting New Delhi, Jaipur and Bagdogra to Kolkata. The airline, which began operations in June 2014, had reported a net loss of Rs 7.8 crore in the March 2017 quarter, down from Rs 26 crore in the December and Rs 65 crore in the September quarter. Devontae Booker Jersey
What Air India’s seller and any future buyer should do to make the deal fly
At last, the government has decided to bite the bullet and sell Air India (AI). Now, the question is how: strategic sale, or sale through the stock market? Ratan Tata, possibly in alliance with Singapore Airlines, has shown interest, as have others like IndiGo and Qatar Airlines. Strategic sale is a political landmine, which could invite charges of favouritism — or, worse, corruption. ‘Strategic investors’ will always pick up the stakes in the secondary market. But that is not the government’s worry. The only downside of a market sale is that the Indian stock market may not be large enough to absorb this big a sale and fetch a good price. So, should AI’s assets be stripped and each component sold? Or to sell it as a going concern? Or to sell the profit-making subsidiaries — AI Express (low-cost carrier), AI Transport (cargo) and AI SATS (airport services) — land and office buildings separately, and the remaining as a ‘going concern’? The difference between the first and third options is that in the first, landing slots can also be auctioned independently. In the third option, it will be integral with the remaining portion of the airline. A detailed cost-benefit analysis has to be done to decide which is the best alternative. Air Lanka was sold to Emirates as a total airline, which was rechristened as Sri Lankan. It was considered that the government could have got more if the landing slots were sold separately. Severance pay and other obligations should be settled. The less GoI insists on the buyer to take on the existing staff, pilots included, the better price it can get. This is also the right time for GoI to bring a law that dilutes the job security of public sector employees and GoI’s financial obligations to them in the event of privatisation. Then comes the matter of how much to divest. The more the government holds a share in AI, the less will be the price it realises. At the same time, it has to retain its fiduciary responsibility. The British government did this, till recently, by holding one ‘golden share’ of the then-British Airports Authority (BAA, now Heathrow Airport Holdings), thereby holding overriding powers but without any dividends. This method could be ideal for AI’s privatisation too. Should foreign airlines be allowed to hold majority shares? The present rule allows, without breaching the existing cap, up to 100% with ‘other’ foreign players like sovereign wealth funds. This aspect needs a dispassionate and hard-nosed study. Then, should AI be sold all in one go? Or should it be progressively divested? Either way, the government will be on the horns of a dilemma, as China had experienced in its selling of shares of petro company Sinopec in the market. The Chinese government could not divest too much, as it would depress the price. And divesting slowly meant giving a signal to the market of continued government ownership, which meant prices going down after the sale. Another possibility is the adoption of the Maruti-Suzuki model: parking some of its stakes in public sector banks and realising the value later when the prices move up. However, this option is open to the criticism that public sector banks are not much better than our public sector undertakings (PSUs). Selling these stakes in PSBs would still remain a task for the government to avail the benefits of a price appreciation. Unlike a private-private sale, when the seller is not concerned with the events post-sale, in a government of India-private sale, the government has to be mindful of the post-sale consequences. This, again, creates a dilemma for GoI. A pro-monopoly structure post-privatisation will fetch a higher price and make the privatisation look successful in the eyes of the media and the public. But a pro-competitive structure post-privatisation will benefit the people in terms of a vibrant competition. In India, despite the presence of so-called ‘low-cost carriers’, prices have not come down to the extent that they are in the Far East Asian market. We still do not have vibrant competition. Incumbents have been sabotaging the entry of powerful competitive forces like Air Asia, which has significantly brought down prices by all carriers in the segments it operates. The airline and mobile telecom industries are similar in a way in that both are high fixed cost and near-zero variable cost industries. Thus, during the period of excess capacity, costs can go down to selfannihilating levels. Their only saving grace is to wait for the good times — when demand picks up and excess capacity vanishes, a feature of the airline industry — as it follows the business cycle. Samson Ebukam Authentic Jersey
Why debt-ridden, loss-making Air India is still an attractive buy for some
After the Union Cabinet allowed the divestment of loss-making Air India, several companies such as Tata Group, Indigo and Qatar Airlines have shown interest. But heavy losses and debt remain big concerns of a prospective buyer. However, despite its accumulated losses of more than Rs 50,000 crore and debt of about Rs 55,000 crore, Air India can still be a prized asset for the buyer. Though there is a perception that the national carrier is a lumbering behemoth not fit to churn out profits in a sector where margins are thin, Air India is actually not too big to turn around. Take employee-to-aircraft ratio, an indicator of efficiency as well as the scope of a turnaround. Aakansha Kaushik, a research scholar at JNU, writes in an article that the ratio is comparable to other profitable airlines. In 2015-16, Air India’s employee-to-aircraft ratio was only 106 for a fleet size of 136. IndiGo, the only large consistent profit-making carrier, operated at a higher employee-to-aircraft ratio of 116 though a lower fleet size of 106. IndiGo also had a lower number of maintenance-and-overhaul personnel than Air India. The national carrier has its own maintenance and repair centre, which gives it cost advantage over other players. Passenger load factor, which indicates capacity utilisation of an airline, is another positive for a prospective buyer. Air India’s load factor has improved consistently over the years and has equalled the worldwide average for the airline industry. But it is still slightly below the level of other major players in the Indian airline Industry Other factors that can lure a buyer are Air India’s large asset base, international flying rights, membership of the Star Alliance, valuable slots at big international airports and three profit-making subsidiaries. Air India’s three profit-making subsidiaries are Air India Express (low-fare international carrier), AI Transport Services (ground handling unit) and AI-SATS (a 50:50 ground-handling JV with Singapore Airport Terminal Services). Air India Express reported a net profit of Rs 296.7 crore in 2016-17. It was due to all these factors that Aviation Secretary R N Choubey said recently that Air India had huge value and would find many takers. “In the past three years, we have turned around Air India operationally. The airline is now cash positive,” Choubey said. Corey Coleman Womens Jersey
For a smooth takeoff: Corporate travellers must give employer details for tax credit
Airlines have written to its corporate travellers to register their companies’ or employers’ GST number to claim a tax credit. Corporate travellers form a significant chunk of the air traffic in India. They comprise between 30% and 45% of passengers of a low-cost airline and up to 60% for a full service airline. GST of 5% has been levied on economy-class airline tickets and 12% is charged on business class. “It is mandatory for guests travelling for business to add their company’s GST details at the time of booking. To ensure a seamless experience, we request that you inform your guests travelling for business to register on our portal and claim up to 12% back on flights,” Jet Airways said in the letter to its registered passengers. “After registering, simply add your guest’s GST number every time you make a booking, and all other GST related details will automatically be added to your reservation,” said the airline. Passengers who have not added their GST number at the time of booking may do so within 72 hours of booking their ticket or before their flight departure, whichever is earlier, the airline said. GST invoices will be shared with the passengers’ companies monthly, which can then be used to claim GST benefits. IndiGo and Vistara sent similar emails to their passengers. The government since yesterday implemented a new tax structure which seeks to to replace at least seven indirect tax heads. “Earlier too the companies could claim a tax credit for employees’ corporate travel,” said M Shivkumar, controller at Jet Airways. “The airline then provided a certificate to the corporates with the service tax details against which credit was availed. Now, all the data led by the GST number will be fed into the GST network along with tax invoice details. Corporate entities can then track the transaction in the system and claim credit for the same, which effectively means physical document per se is not adequate unless the same is uploaded in the GST network system,” he added. “Also in the case of airline travel, service tax was extremely difficult to claim and led to litigations sometimes. Now, it would be much easier,” said an independent chartered accountant on condition of anonymity. Michael Matheson Jersey
Gadkari, Prabhu, Goyal and Raju to be part of Air India privatising panel
Senior Union ministers Nitin Gadkari, Suresh Prabhu, Piyush Goyal and Ashok Gajapathi Raju will be part of a five-member ministerial panel headed by finance minister Arun Jaitley tasked with deciding the process of privatising Air India, which may start by December. The committee’s brief is to finalise the structure and procedure of privatising the debt-laden national carrier. The government wants the process to be finalised speedily and bidding to start within six months, an official said. “The mood in the government is that the process should get underway quickly,” said the official. The Union cabinet cleared the divestment of loss-making Air India and five of its subsidiaries last Wednesday. It said the ministerial panel will decide on how much stake will be divested and the universe of bidders — whether a foreign company can bid. The panel will also determine how the airline’s unsustainable debt will be treated, the spinning off of assets to a shell company, and demerger and strategic disinvestment of three profit-making subsidiaries. Air India’s three profit-making units are lowfare international carrier Air India Express, ground-handling unit AI Transport Services and AI-SATS, a 50:50 ground-handling JV with Singapore Airport Terminal Services. The government decided to sell Air India after hopes of the airline’s revival turned bleak, with losses of more than Rs 50,000 crore and debt of about Rs 55,000 crore continuing to accumulate. The carrier is afloat thanks to a Rs 30,231-crore, nine-year bailout programme approved by the previous government in 2012. The Tata Group and low-fare carrier IndiGo have shown interest in acquiring Air India. While the Tata Group has not made its interest official, IndiGo has written to the aviation ministry saying it may bid for the airline. IndiGo president Aditya Ghosh said in a letter to employees that its “interest in Air India is primarily in its international operations.” IndiGo cofounder Rakesh Gangwal has significant experience with turnarounds as former CEO of US Airways. He has also dealt with airline unions, which might come in handy in any possible acquisition of Air India. The Cabinet Committee on Economic Affairs chaired by Prime Minister Narendra Modi approved the recommendations of Niti Aayog on strategic disinvestment of Air India and five of its subsidiaries based on the recommendations of the Core Group of Secretaries on Disinvestment. The government may look at exiting Air India completely. The Niti Aayog proposed total privatisation of the national carrier in a report to the Prime Minister’s Office. Parker Ehinger Womens Jersey
Can an airport be a destination?
Kolkata: Airports, for most travellers, tend to fall into two categories. The first is the shoot-me-now domain of the budget airline, where passengers are kettled into pens akin to those found in a knacker’s yard. The second is the not-as-smart-as-it-thinks international hub. This is a place where rush-hour crowds, a dire lack of seating and offensive coffee see you trot to the gate as fast as possible. The less time spent in these vacuous, cookie-cutter hangars, the better. But – wait – there is a third. A holy grail game-changer, with easy-on-the-wallet street food, custom furniture and vernacular architecture. And Changi Airport, on a spit of reclaimed land in Singapore, claims to be such a utopia. Here, I’ve heard, it’s not uncommon for fanatical locals to spend all weekend eating, drinking and shopping without once leaving the mall-like hive of terminals. I have a 48-hour layover in Singapore coming up, so instead of going into the city, I’m going to have a holiday in the airport, from Saturday to Monday morning. 9.00am. Departures level, a little bleary-eyed from an overnight flight, and I’m zipping to T3 on the Skytrain, a landmark monorail that shocked everyone as Asia’s first driverless train when it opened in 1990, and now ferries passengers between the terminals. We whisk past Changi’s latest madcap attraction; the Jewel, a new, S$1.7b terminal-in-progress that’s due open in 2019. Once finished, it will house a hedge maze, 130ft waterfall, tropical canopy walkway, and “indoorto clouds”. Barmy? Even Singaporeans think its nuts. 10.00am. Indoor clouds are just the start here at the world’s sixth busiest airport. Eyeing the airport diorama on the public concourse, it’s clear the razzamatazz is relentless. Brandon Kintzler Womens Jersey
GST: Aviation sector to face teething problems, says SpiceJet CMD Ajay Singh
In a U-turn, the ministry later said it was prepared for the GST roll-out from the stipulated date. “I think it is a revolutionary reform and the government needs to be lauded for its courage to go forward with such a big reform. Any such reform will have its share of teething problems and so will this one,” Singh told reporters at an event here. Double taxation on import of aircraft wherein their import as well as leasing of the same plane will invite separate taxes is an area of concern that the airlines have shared with the government, he said. The SpiceJet CMD said input tax credit being not available for economy class tickets -— a segment where there are more number of passengers, was another matter of concern. The aviation sector is likely to face “teething problems” for four to six months due to the implementation of the Goods and Services Tax (GST), SpiceJet CMD Ajay Singh said today. He, however, said his airline was “fully prepared” to usher in the indirect tax regime from July 1, and that airlines were working along with the government to resolve any concern. The aviation ministry had earlier sought postponement of the GST implementation by two months on the ground that airlines needed more time to revamp their systems to comply with the new tax regime. Input tax credit allows an entity to deduct the levies paid for the inputs while paying the taxes on the final output. Since GST is applicable for goods as well as services, input tax credit provides a leeway for the entities concerned. “We will wait for a clarification,” he said. “Any reform of this magnitude will have its share of problems and this one will too. It will take four to six months (to resolve them),” Singh noted. Airline officials have maintained that making changes in the global ticket distribution system to ensure compliance with GST would take time. Airlines are also in a fix over the possibility of movement of stocks, equipment or aircraft parts being taxed under the new taxation policy. Global airlines body International Air Transport Association (IATA) has also sought clarifications on the tax treatment for the aviation sector under GST and claimed there were “information gaps”. On the impact of demonetisation, the SpiceJet CMD said the airline’s yields had improved and that the impact of the note ban came down over the past two quarters. Max Jones Authentic Jersey
Will not pursue Air India bid if not profitable: IndiGo President Aditya Ghosh to staff
Having joined the race to buy out Air India, IndiGo President Aditya Ghosh has told employees that it will not embark on the journey if it is not profitable and jeopardises interests of the airline. Making its intention clear to become a world-class international carrier, IndiGo became the first airline to formally express interest in loss-making Air India soon after the government decided on its disinvestment even as the modalities are being worked out. IndiGo, the country’s largest airline with a domestic market share of a little over 41 per cent, is keen on snapping up the international operations of Air India as well as its profitable low-cost arm Air India Express. As an alternative, the budget carrier is “equally interested” in buying out all the operations of Air India and Air India Express, according to the letter sent by Ghosh to the civil aviation ministry. After showing its interest in Air India disinvestment — a development which was first announced by the ministry — Ghosh wrote to IndiGo staff listing out the reasons behind the move and sought to assure them that every action would be in the best interest of the airline. “Let me be very clear that if it is not profitable and does not add value to our employees, customers and shareholders, we will not embark on this journey,” Ghosh, who is also a Whole-Time Director, told employees on Thursday. “As one of those who bleed blue and who have helped build this great organisation, you can rest assured that your leadership team and the founders of IndiGo will never do anything to jeopardise what you helped build and will always act in the best interest of IndiGo,” he said. Noting that IndiGo is primarily interested in Air India’s international operations, Ghosh said that over the past decade, a significant domestic network has been created which gives confidence to build a world-class international airline in the scale and scope of some of the largest airlines in the world. With a fleet of nearly 135 aircraft, IndiGo operates over 900 flights on an average every day. Besides, the carrier has more than 450 planes on order. In his letter to the employees about interest in Air India, Ghosh stressed that without IndiGo’s domestic feed network, it does not make sense to embark on this journey. “… if we do go down this path, it would require significant restructuring of the acquired operations. In that journey, we are not going to take on debt and liabilities that could not be supported by the new restructured operations,” he noted. Asserting that IndiGo will not embark on the journey if it is not profitable, Ghosh said the leadership team and the founders will never do anything to jeopardise what has been built. As it pursues aggressive plans, IndiGo has also flagged concerns over some overseas airlines being given “disproportionate access” to the Indian aviation market. “Over time, India has allowed disproportionate access to airlines of some of the city states in the Middle-East and South-East Asia. The massive hubs that these airlines have built significantly benefited at the expense of India. “As a consequence of this, India’s international air transportation hubs reside outside the geography of our country. It is time for India to take back its fair share of international traffic and bring back this economic wealth to where it rightfully belongs,” Ghosh said in the letter, dated January 28, written to the ministry. Before IndiGo made this letter public on Thursday, Civil Aviation Secretary R N Choubey had said IndiGo has written a letter with an unsolicited expression of interest in the divestment procedure of Air India. The Cabinet has decided to form an Air India-specific Alternative Mechanism to take forward the disinvestment plan. Various issues, including the treatment of unsustainable debt of Air India, hiving off certain assets to a shell company and de-merger and strategic disinvestment of profit- making subsidiaries, will be looked into. Air India has a debt burden of over Rs 50,000 crore and is staying afloat on taxpayers’ money. Mark Duper Jersey
Not that courageous to invest in Air India: Anand Mahindra
“I don’t possess that much courage” to invest in Air India, noted industrialist Anand Mahindra has said amid the government deciding to sell stake in the loss-making airline. To revive the carrier, the Cabinet has decided on its disinvestment and the modalities such as the treatment of unsustainable debts of Air India and hiving off certain assets to a shell company would be decided. “I see myself as a generally courageous person… But I confess… I don’t possess THAT much courage…,” Mahindra said in a tweet. He was responding to a tweet on whether Mahindra would invest in Air India. Last week, business leader Sunil Mittal had said that if Air India is to be privatised, then Tatas will be one of the better candidates to buy stake in the airline. While there has been no official word about their plans, Tata group is believed to be interested in purchasing stake in the national carrier. No-frills carrier IndiGo has expressed interest to buy Air India but various other international and domestic airlines contacted by PTI did not offer any comment about their interest. On whether Emirates would look to buy stake in Air India, the Middle East carrier said its strategy is unchanged. “Our business is focused on organic growth and has a pipeline of investments to renew and grow the fleet, expand the global network and continuous innovation of our products and services,” the airline said in an e-mailed statement. “Emirates confirms that it has no plans to acquire a stake in any airline/ airport in India or elsewhere,” it added. Responding to the same query, a flydubai spokesperson said, “this isn’t something that we are exploring and we remain committed to growing our network in India organically”. A Lufthansa spokesperson said it would not comment on speculations. “Jet Airways does not comment on speculation. As a listed entity, all material decisions are taken by the company’s board and duly conveyed at the appropriate time,” an airline spokesperson said. There was no immediate comment on the query from SpiceJet. Queries sent to Qatar Airways, Turkish Airlines and South Afircan Airways remained unanswered. Darren Sproles Womens Jersey