rediff.com: Govt to sell 60% of Air-India equity

He said 40 per cent would be offered to a strategic partner, up to 10 per cent through an employee share option purchase scheme and 10 per cent to domestic financial institutions and domestic investors.

However, of the 40 per cent offered to a strategic partner, the maximum which could be held by any foreign partner would be 26 per cent.

A government spokeswoman said that the 40 per cent, to be offered to a strategic partner, may include more than one party.

The panel also recommended the appointment of a global adviser who would advise it on a "detailed management plan".

Air-India, which lost Rs 1.74 billion in the fiscal year to March 1999, had an estimated loss of Rs 897 million in 1999/2000 (April-March).

The airline, which has a fleet of 26 aircraft, said earlier this month it was planning to take on lease six to eight Airbus-310s and two Boeing 747-300s.

In January, the ground was set for the equity sale in Air-India when the Cabinet had decided to sell 51 per cent of the equity of state-run Indian Airlines, the country's domestic carrier.

Air-India has more than 18,000 employees, and, at 750 employees per aircraft, has one of the highest employees per aircraft ratios in the world.

India's move to unshackle its state-run international airline from decades of government controls will not only revive the ailing carrier but also pave the way for privatisation in other key sectors, analysts said.

Months after the country's Disinvestment Commission, which advises the government, recommended the sale of up to 60 per cent of the state-owned stake in Air-India, the Cabinet Committee on Divestment, on Friday finally gave the sale the go-ahead.

The panel said that 40 per cent of the government-held stake would be sold to a strategic partner or partners, of which a maximum 26 per cent could go to any foreign partner.

The government also said that up to ten per cent would go to employees and another ten per cent to domestic financial institutions and investors.

Aviation analysts welcomed the "strategic move", saying the decision would not only help the firm to bring in better technology from its foreign partner, but also make the carrier free of political interference.

But by retaining Indian control -- both domestic and government -- at 74 per cent equity, the government will help to keep at bay its critics, who often complain of the sale of "the family silver".

"It was extremely clear that the Indian government did not have the funds to revive the airline," Ranjit Walia, an aviation expert, told Reuters.

"The move will help the government in achieving its divestment target, make the airline more efficient and become a profit-making organisation," he said. "There will be many foreign takers for equity in the airline."

The government has set a divestment target of Rs 100 billion ($2.25 billion) for 2000/01 (April-March).

Air-India, which lost Rs 1.74 billion in the fiscal year to March 1999, had an estimated loss of Rs 897 million in 1999/2000.

"I am confident that the firm will be able to make profits the year after the divestment process is completed," Walia said.

The airline has a fleet of 26 aircraft. The company said earlier this month that it was planning to lease six to eight Airbus-310s and two Boeing 747-300s.

But analysts said any addition to the fleet was not possible unless fresh funds were raised from stake sale.

The move to divest comes after the Cabinet in January decided to sell 51 per cent of the equity of state-run Indian Airlines, the country's domestic carrier.

"This is also a percursor to the determination of the government to move into second generation reforms," the Press Trust of India quoted Amit Mitra, secretary-general of the Federation of Indian Chambers of Commerce and Industry, as saying.

The government initiated a reform process in 1991 but several sectors like banking and aviation are just being exposed to the changes.

Aviation experts said the move to offload government stake will help the airline to shed its additional flab and also give a base to compete in the fast-growing aviation sector.

"The whole thing can be summed up as a masterly stroke," Walia said. "This is the best the government could have done under the circumstances."

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Govt to sell 60% of Air-India equity; airline will benefit, govt's divestment resolve strong, say analysts