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The BBC's Sanjeev Srivastava
"The airline lost its kingdom long ago"
 real 28k

Thursday, 1 June, 2000, 17:34 GMT 18:34 UK
Air India hunts for partners
Air India
Foreign airlines can pick up a 26% stake
India's national carrier, Air India, says that several international airlines have expressed an interest in picking up a stake in the airline.

A spokesman declined to name any possible contenders, but said it followed a government decision to privatise the airline.

The government has announced plans to sell a 60% stake in the airline - 26% of which would be offered to a foreign partner.



The government has other priorities so there is no other way

Chairman Michael Mascarenhas
But critics say the airline could struggle to find buyers with the government still holding on to a 40% share.

Inefficient

Air India has nearly 750 employees per aircraft which makes it the most over-staffed airline in the world.

Most international airlines average 200 employees per aircraft.

Air India reservation office
The airline is heavily overstaffed
It is part of the reason for cumulative losses of more than 10bn rupees ($220m) in the past five years.

With only 23 aircraft in its fleet Air India is also the smallest international airline in the world and it flies to only 19 destinations.

All of this has led to falling standards in an airline that once prided itself as one of the world's best.

Air India managing director, Michael Mascarenhas, told the BBC that it was not just the growing losses which made the authorities think in terms of part privatisation.

"If we need to remain relevant in the aviation business we must modernise and buy more aircraft," he said.

"The government has other priorities so clearly there is no other way but to walk the disinvestment route," he said.

Political fallout

India has 1,240 state-owned companies, more than half of which are either making huge losses or have been shut down.

The future of these companies has been fiercely debated ever since India began its economic reform programme in the 1990s.

Air India inflight
Fewer destinations and a smaller fleet
The BBC's Sanjeev Srivastava in Bombay says the moves to privatise Air India have pleased the business community, particularly overseas investors.

UR Bhat of Jardine Fleming (India) said the proposal sent a positive signal to foreign investors.

"For long the very mention of a foreign airline taking up stake in either Indian Airlines of Air India was anathema to policy makers," Mr Bhat said.

"Now that seems to be changing and foreign airlines could pick up a 26 % stake in Air India," he said.


There is still a possibility of the government attempting... some backseat driving

Analyst UR Bhat
However, he said the government would have got better value for Air India if they were willing to offer more than 40% stake to the strategic partner.

"There is still a real possibility of the government attempting to do some backseat driving," he said.

"That would completely defeat the purpose of disinvestment," Mr Bhat said.

The Indian Government has set itself a target of raising $2.5bn this year through selling equity in state-owned companies.

Analysts say while the disinvestment of Air India was a step in the right direction, raising that kind of money would be difficult unless the government was willing to do away with half measures in their privatisation programme.

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See also:

25 Feb 00 | South Asia
'Strong medicine' for Indian economy
28 Feb 00 | South Asia
Report highlights India's deficit
25 Jan 00 | South Asia
Indian Airlines to be privatised
22 Oct 99 | South Asia
Analysis: Upping the pace of reform
07 Oct 99 | South Asia
Hope for India's economy
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