Non-resident Indians can now fully own Air India but will that change its fate?

Mar 11,2020

Non-resident Indians can now fully own Air India but will that change its fate?

The Narendra Modi government is pulling out all stops to find a buyer for Air India ahead of the March 17 deadline for preliminary bids.

Last week, the government approved 72 changes to India’s Companies Act, which paves the way for non-resident Indians (NRIs) to acquire a 100% stake in the debt-laden national carrier. The foreign direct investment (FDIs) will be permitted under the automatic route, that is without the need for approval from the central bank or the government. The earlier cap for NRIs was 49%.

The move is “meant to liberalise and simplify the FDI policy to increase the ease of doing business in the country,” the government said in a March 4 press release.
While the measure is aimed at mobilising more buyers, analysts are sceptical. “The decision sounds like it is based on the assumption that NRIs will be interested in investing in Air India,” said Ashish Nainan, a Mumbai-based aviation expert. In the absence of a desired response from NRIs, he said, this move will hold no relevance.

The government kicked off the Air India sale process on Jan. 27, but so far there hasn’t been a single confirmed expression of interest. India’s civil aviation minister hinted last week that the March 17 deadline could be extended.

After all, the FDI restraint was not the only issue keeping investors away.

“In addition to settling Air India’s huge liabilities and competing with other airlines in the ticket-price war, a new buyer will also have to build a strong understanding with Air India’s unions for its smooth operation and manpower optimisation,” said Murlee Dhar Shyam, a consultant with GMR Airports.

Bidders for the airline will need to absorb Rs23,286.50 crore ($3.5 million) of debt.

Then there is the issue of restructuring. “Upgrading the airline to compete with existing private carriers will also be the new buyers’ responsibility,” said Nainan. “They (the new buyers) will need a more uniform and efficient fleet and upgraded technology to be able to do that.”

What’s more, the impact of a black swan event, like the ongoing coronavirus outbreak, on the aviation sector will force potential investors to think twice, as cited by Brian Pearce, the chief of the International airlines’ grouping, International Air Transport Association (IATA). “The concerns raised by the IATA chief may play out on the minds of some investors,” Nainan said.

He, however, added that this may be a temporary issue. “Coronavirus won’t stay for long. As and when there are positive developments, like the discovery of a vaccine, it would become irrelevant,” he said.

What’s happening now?
Meanwhile, the government’s efforts may be bearing some fruit as the salt-to-software Tata group has reportedly signalled its interest in Air India.


The board of Tata Sons , which met on March 6, evaluated the plan and wants to resolve some “structural issues” before submitting a formal expression of interest, The Times of India reported on March 7. A few days before that on March 3, Bhaskar Bhat, chairman of Vistara airline and a director on the Tata Sons board, said the group was evaluating its options. Vistara is jointly owned by the Tatas and Singapore Airlines.

“Which entity in India will not be interested to evaluate buying Air India? We need to do a thorough evaluation as Vistara is itself on a long journey,” he said at a media briefing in New Delhi on March 3.

Market observers are also keen on Vistara taking over Air India.


“Air India and Vistara are a good fit. Vistara may be a small airline, but you have to look at the considerable might and capabilities of the Tata Group and Singapore Airlines,” a consultant who is helping the government on the proposed transaction told the Economic Times.

In January, it was reported that the government was in discussion with nine firms regarding the divestment process. Preliminary meetings involved the executives of British Airways’ parent IAG SA, IndiGo, India’s biggest airline, and domestic carrier SpiceJet.

“Companies operating airlines domestically and globally have shown interest in Air India,” Hardeep Singh Puri, India’s civil aviation minister, said on March 9.

Notably, there hasn’t been any official confirmation of the names yet.






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