Why is the government selling Air India

India wants to get rid of a block on the leg with Air India

The Indian government wants to sell the national airline, which has been making a loss for years. Air India has a legendary bad reputation. A takeover only makes sense if the buyer succeeds in massively reducing operating costs.

For the second time in two years, the Indian government is trying to knock down the heavily indebted state airline Air India (AI). After a first attempt to privatize the airline failed in March 2018, a significantly improved offer is now intended to attract investors: Instead of parts, the government is now putting 100% of the airline up for sale and sweetening the deal by buying the lion's share of around 8 billion francs in debt will arise. The buyer should only have to take over around CHF 3 billion and, as a bonus, also receive all shares in the Air India subsidiary and low-cost airline Air India Express.

Air India flies to almost a hundred domestic and foreign destinations. In recent years, the airline has only survived thanks to large financial injections from the government. By pushing ahead with privatization, Narendra Modi's government is not just trying to get rid of one problem. She also hopes to collect urgently needed foreign currency. If no buyer can be found, flight operations could be completely stopped.

It is not clear whether the significantly improved offer will attract bidders. Air India has a legendary bad reputation among its passengers. In industry circles, the line is notorious for its extremely high costs, which are mainly caused by a bureaucratic water head. Anyone who wants to offer even a symbolic amount for Air India has to be convinced that they can drastically reduce operating costs, says the Indian business paper “The Mint”.

For Air India, the buyers would secure take-off and landing slots at peak times through the acquisition in India and around the world. In the past, the Indian low-cost airline Indigo had shown interest in getting involved in AI. However, it is questionable how Indigo's cheap model could go together with that of the state airline. Etihad Airways from Abu Dhabi has also considered a stake, but would have to look for partners from outside the industry in order to take over 100% of Air India: Indian law only allows foreign airlines to hold a maximum of 49% stake in a domestic airline.