June 29, 2017 / 6:01 AM / 25 days ago

Cabinet approves plan to privatise Air India

An Air India passenger plane takes off from Sardar Vallabhbhai Patel International Airport in Ahmedabad January 30, 2013.Amit Dave/Files

NEW DELHI (Reuters) - India approved plans on Wednesday to privatise debt-laden Air India, the first step of a process that could see the government offload an airline struggling to turn a profit in the face of growing competition from low-cost rivals.

Finance Minister Arun Jaitley told reporters after a cabinet meeting that the government had given an "in-principle" approval for the sale of a stake in Air India.

The approval, the first of a series of steps needed before Air India can be sold, signals Prime Minister Narendra Modi's determination to fend off union opposition and sell an asset some economists have long argued should be in private hands.

Previous attempts to sale the state-owned airline have floundered, in part due to a lack of potential buyers.

India will now form a committee to decide on the details, Jaitley said, including the size of the stake to be sold and whether the government should write off part, or all, of Air India's 520 billion rupees ($8 billion) in debt - a step some officials say is a must to attract buyers.

Once India's biggest airline, Air India's market share in the booming domestic market has slumped to 13 percent as private carriers such as IndiGo, owned by InterGlobe Aviation, SpiceJet and Jet Airways expanded.

The carrier was bailed out in 2012 with $5.8 billion of federal funding.

Some officials in the civil aviation ministry have said it would be better to dispose of the airline's subsidiaries and property holdings initially to lower the debt burden and ensure taxpayers benefited if the airline's performance improved.

Air India is still a large player on international routes and it has gradually improved its operational performance in recent years. Its popular landing slots could make it an attractive proposition, without the debt.

The airline, which was founded in the 1930s by the Tata Group before being nationalised after Indian independence in 1947, has failed to make money since a botched merger in 2007.

Reporting by Sudarshan Varadhan and Tommy Wilkes; editing by Mark Potter and David Clarke

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