How a stake in AI could help a global airline soar higher

Air India

Days after Air India's new route connecting New Delhi and Tel Aviv via Saudi airspace was hailed as a historic breakthrough in geo-political relations, Israel's national airline El Al reportedly is seeking cancellation of the Air India's new route.

"However, we will keep our options open with respect to the proposed divestment of Air India, " The Singaporean carrier said in a statement.

The process is being monitored by Air India-Specific Alternative Mechanism headed by Finance Minister Arun Jaitley.

Indian government has reached a decision to sell its 76% stake in Air India airlines to private parties.

To remind you, the government will retain a 24 per cent stake in the airline post privatisation. On Wednesday, the Civil Aviation Ministry came out with the preliminary information memorandum for seeking Expression of Interest (EoI) for the strategic disinvestment of Air India.

What one gets with a 76% stake in Air India is an operational fleet of 104 aircraft of which only 69 are owned outright or through financial lease by the airline.

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The latter is an equal joint venture between the national carrier and Singapore-based SATS Ltd.

Saudi approval of Air India's new route has been interpreted as a sign of a possible rapprochement with Israel.

Indigo operates primarily on domestic routes has about a 40 percent market share compared with a domestic market share by Air India and subsidiary Air India Express of 12.3 percent. Air India employees have also been permitted to participate as bidders either directly or by formation of an "employee consortium" subject to relevant conditions. Modi in January tweaked rules in January to include Air India which wasn't a part of those rules until then. Though the encouraging sign is that Air India's employee cost as a percentage of revenue is only 12%, one of the lowest amongst global airlines like Singapore Airlines (15%), British Airways (21%) and Cathay Pacific (20%).

The airline is under a massive debt burden of over Rs. 50,000 crore. Only Indian national to be allowed to control the Air India with a minimum net worth of Rs 5,000 crore can only bid, the lead member shall hold at least 51% of paid up capital.

In the second stage, the highest bidder would be declared as the buyer after requisite security clearances.

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