Air India is in the process of evaluating several options to bring down the government's stake once it turns profitable. The national carrier expects to turn profitable in 2018-19, two years ahead of the original turnaround target of 2020-21 through better revenue generation and restructuring of the Rs 10,000-crore term loans with government guarantee backed non-convertible debentures.

One of the options being considered is conversion of debt into equity such that the government's stake comes down to 51 per cent. Aviation ministry officials said in every internal meeting of Air India, privatisation was discussed at length, though there is no clarity on how the airline plans to rope in private investors. Air India has total debt of around Rs 50,000 crore.

State Bank of India is lead banker in the 26-member consortium to Air India and includes Punjab National Bank, Bank of Baroda and Central Bank of India.

According to sources, the lenders might be asked to exercise this option at a stage when the airline clocks better performance. "There are several plans which include asking the banks to convert debt into equity but that will work out only when the airline is profitable," said one official. However, he said the plan was at a very nascent stage and nothing has been finalised.

In an interview to Business Standard last week, chairman and managing director Ashwani Lohani had said: "There is a huge backlog of past loans and we are servicing that debt. Even with all these loans, we are targeting a net profit by FY18."



Air India's market share has declined over the years in the face of competition from private airlines and according to latest data stands at 15.7 per cent, behind IndiGo and Jet Airways.

Lohani told Business Standard last week the company was in much better shape, thanks to soft crude oil prices and better operating mechanism. "We are looking at consolidation. We are now looking at growth. We are now talking about more flights. We are talking about aggressive revenue management. To put it simply, there is an attempt to run Air India like a commercial organisation," he had said.

When asked about the airline's privatisation plan, Lohani said he believed in the strength of the public sector. Earlier on Wednesday, a news agency reported that the government was considering setting up a panel, which would include representation from the finance ministry, the civil aviation ministry, the Cabinet secretariat and the airline, to consider selling 49 per cent stake in Air India to meet its revenue target from state asset sales next financial year. However, officials denied this, saying the airline was in the midst of a turnaround and any talk about privatisation and stake sale would be useful only when it started making profit. The ministry also denied any proposal to offer its equity in Air India to banks in a debt-swap agreement. "No such move," Civil Aviation Secretary R N Choubey said, in a text message.

A committee headed by Rakesh Mohan, former deputy governor of the Reserve Bank of India, had recommended earlier that the government reduce its stake in AI to 26 per cent over five years.

Terming AI's financial situation as precarious, the National Transport Development Policy Committee, which was set up in 2010, had also said that the airline would need to be recapitalised, restructured organisationally, its working capital debt burden written off and some divisions made independent and corporatised.