Foreign airlines may be allowed to bid for Air India

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New Delhi: India is likely to change rules to allow foreign airlines to bid for Air India Ltd as long as they have a local joint venture with an Indian partner as the government seeks to increase the number of suitors for the debt-laden national carrier.

“Foreign airlines will be allowed to bid as per the current policy that’s applicable on all domestic airlines. That much we can confirm,” an official with knowledge of the matter said on condition of anonymity. Existing rules allow foreign airlines to own as much as 49% in an Indian airline, with the exception of Air India.

With the change in rules, the government expects to make the sale of Air India, which has drawn interest from companies including the Tata group and InterGlobe Aviation Ltd (IndiGo), more competitive.

The civil aviation ministry has conveyed the proposal to a group of ministers looking into Air India’s stake sale in a recent meeting. The panel led by finance minister Arun Jaitley also includes aviation minister Ashok Gajapathi Raju, transport minister Nitin Gadkari, railways minister Piyush Goyal and commerce minister Suresh Prabhu.

The government will have to make several changes to existing rules before foreign airlines can bid for the national carrier. First, the department of industrial policy and promotion’s Press Note No. 6 (2012 Series) has to be amended to remove a clause that bars foreign investment in Air India. Second, international flying rights negotiated between two governments require respective airlines to have local effective control to avail of these rights. A change in control to a foreign airline will invalidate these rights.

To ensure Air India does not face any issues, the government will retain a clause that says Air India cannot be 100% foreign-owned (even though foreign entities can own 100% of a private Indian airline, stakes of foreign airlines are capped at 49%). This, the aviation ministry believes, will allow “effective control” to be retained in India as the majority ownership will be with an Indian entity.

The ministry has also told the department of investment and public asset management to speed up the process of the Air India privatisation, said the official cited earlier.

The debt of Air India not linked to aircraft will also be hived off and will be likely placed in a special purpose vehicle, the official said.

Air India had total debt of about Rs48,877 crore at the end of March 2017, of which about Rs17,360 crore were aircraft loans and Rs31,517 crore were working capital loans.

EY, which is advising the government on the sale, has already started work and recently made a presentation to the aviation ministry.

Last week, the aviation ministry said it has decided to sell Air India as one airline, including domestic and international operations.

InterGlobe Aviation had said in July that it would be interested if Air India’s international operations are unbundled and put up for sale as it wants to strengthen its overseas network. Tata Sons Ltd executive chairman N. Chandrasekaran said in October that the group is considering buying Air India and has set up “a team which can definitely spend the time as soon as the details are out”.

A former Air India chairman who did not wish to be named said it remains to be seen if government will allow deep-pocketed West Asia airlines to bid for Air India.