MUMBAI (NewsRise) -- The grounding of cash-strapped Jet Airways has helped improve the "financial and operational performance" of state-owned Air India, but its staggering debt is a hurdle in the government efforts to sell a stake in the flag carrier. The government said Thursday it plans to revive the disinvestment of Air India as the airline's profitability and operational performance improved. Last year, authorities had shelved a plan to sell a stake in the unprofitable carrier after failing to find any bidders.
Some of the potential suitors had pulled out of the race, citing the onerous conditions New Delhi had set for the stake sale. The government blamed high oil prices, a weaker Indian currency and rising interest rates at that time, and said it would soon come back with a new plan.
The plan to revive the stake sale comes as Mumbai-based Jet Airways, mired in losses, began to cut back on flights and headed toward bankruptcy. By mid-April, Jet grounded its fleet as it ran out of cash,
triggering a capacity crunch in the market.
The shortage pushed up airfares, allowing rivals such as IndiGo and Air India to make a windfall. Aviation consulting firm CAPA India expects the Indian aviation industry, which includes six major carriers and three smaller ones, to turn to a profit for the first time this fiscal year since the consultancy started tracking the industry in 2003.
CAPA expects Air India to break even at a net level for the first time in more than a decade this year, according to a report it published earlier this month. Air India is likely to pile up losses of more than 76 billion rupees ($1.1 billion) in the just-ended fiscal year, Junior Aviation Minister Hardeep Singh Puri said Thursday in the lower house of parliament.
Once a market leader, Air India has been incurring losses over the years, weighed by competition, surging fuel prices, and high cost of its debt. Analysts have in the past said that the government should completely exit the carrier, saying any level of equity retention will deter investors. New Delhi had in 2012 sunk in $4 billion of public funds to revive Air India over 10 years.
In the fiscal year ended in March, the government injected about 40 billion rupees into the airline, Puri said, adding that the airline's debt stood at 583.5 billion rupees ($8.43 billion).
Analysts say the biggest deterrent to Air India's stake sale is the debt on its books as interest payments remained the primary cause of the airline's losses.
The government hived off a part of its debt worth 300 billion rupees into a separate entity and is trying to sell some of its assets and units, including the ground handling unit.
Still, when lenders tried to sell a stake in Jet Airways, they were unable find a suitor though the company had a fraction of Air India's debt at around $1 billion. That raises questions about Air India's ability to find an investor, said analysts.