Centre may completely exit Air India, ask LIC to pick up stake

The government may completely exit Air India by selling its residual stake to Life Insurance Corporation of India (LIC) and other financial institutions, according to a Business Standard report citing sources. This would help allay investors’ concerns about possible government interference in the airline’s operations.

The government has decided to divest 76-per cent of its equity stake in Air India Ltd, along with Air India’s 100-per cent holding in its subsidiary Air India Express Ltd, as well as 50-per cent in ground handling joint venture AISATS.

A senior official aware of the government’s plans told Business Standard discussions are about to start with LIC and other state-owned insurance companies for selling the government’s remaining stake in Air India after employee stock ownership plans (ESOPs) are given out to the permanent employees. Subsequent to the ESOP, an employee stock pool will be created, resulting in the government shareholding falling below 20 per cent.

With financial institutions holding the stake, the ministry of civil aviation will have little oversight over the airline, the BS source said.

Potential bidders and sector analysts had earlier argued that any government holding in Air India may discourage investors. “Our view is that joint ownership with the government is at best a very difficult proposition and we would not go down that path,” Rakesh Gangwal, co-founder of IndiGo, had earlier said.

LIC and other state-owned insurance firms hold stakes in many blue-chip companies. According to regulations of the Insurance Regulatory and Development Authority of India (Irdai), insurance companies can hold up to 15 per cent in a company.

“A valuation for Air India will be reached, based on which a price will be discovered. The entities will be approached to buy the stake at that price,” another official said. “It is expected that with improved performance of Air India under private management, it will be lucrative to hold the company’s shares and the same can be offloaded during public listing.”

According to the preliminary information memorandum, Air India’s new owner will be asked to list the company in some time. The terms will be spelt out in the share purchase deal.