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Row over IA privatisation torpedoes similar plan for Air-India

George Iype in New Delhi

The disinvestment plan for Air-India has hit a roadblock as the core group of secretaries has desisted from giving the final approval to privatise the country's international carrier.

The core group, headed by Cabinet Secretary Prabhat Kumar, includes secretaries of civil aviation and finance, department of public enterprises, met on Wednesday to recommend the disinvestment of Air-India on the lines of the domestic carrier Indian Airlines to the Cabinet Committee on Economic Affairs.

But sources said the caretaker status of the Atal Bihari Vajpayee-led government has forced the core group to defer giving the go-ahead to the proposal.

Although Finance Minister Yashwant Sinha promised two days ago that the crucial decision to partially sell the government stake in A-I would also be taken this week, it is unlikely that the proposal would be passed by the CCEA in haste.

The main reason for the "go-slow" on A-I privatisation is the controversy that the restructuring of the Indian Airlines has generated.

While major opposition parties have questioned the caretaker Vajpayee government's authority to take such vital policy decisions, the IA employees union has vehemently opposed the privatisation of the airline.

While announcing its decision to privatise Indian Airlines, the government has agreed to release Rs 3.25 billion towards its equity and allowed it to mobilise funds from the capital market through an initial public offering or any other modalities available for restructuring.

While the basis for the privatisation of IA has been recommended by a committee, headed by the present Finance Secretary Vijay Kelkar, another committee headed by Kelkar is currently examining the Disinvestment Commission's recommendations and finalising its report on AI.

The commission, in its fifth report, had recommended that the government should infuse Rs 10 billion in A-I while reducing and sell 40 per cent of its equity to a strategic partner through global bids.

It also proposed that 20 per cent stake should be equally given to domestic institutional investors, retail investors and employees.

Sources said the second Kelkar committee report will in all likelihood recommend that the government should infuse much more than Rs 10 billion to tide over the deep financial crisis the AI is caught in.

Officials say the government instead of privatising IA, should have gone in for the disinvestment of A-I at this juncture as the latter is "in dire straits compared to the former".

"Because of its shrinking fleet strength and network, A-I is getting completely marginalised in the global market. Therefore, the government's priority should have been to immediately implement the disinvestment proposal for the carrier," a civil aviation ministry official told Rediff On The NeT.

He said the main reason why the airline's privatisation move is yet to take off is A-I's own failure to comply with certain stern reform initiatives which the government wants it to launch. The initiatives includes closing down and combing some of A-I's foreign offices, drastically pruning costs and down-sizing the employee strength, one of the highest in the world.

A-I has been piling up losses in the last few years with the net loss from April to December in 1998 alone has been a whopping Rs 1.99 billion.

A proposal to strengthen the 26-fleet A-I by purchasing medium-capacity long-range aircraft has been hanging fire for the last four years as successive governments have neither given adequate budgetary support nor approved alternative financial arrangements.

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