The government is planning to shed majority stakes in Indian Airlines and Air-India to domestic banks and financial institutions. Both the carriers are now wholly owned by the government.

Senior government officials told Business Standard such a move would enable the two carriers to induct professional management and facilitate a speedy turnaround. While IA incurred losses of Rs 246 crore (Rs 2.46 billion) in 2001-02, A-I reported profits of Rs 154 crore (Rs 1.54 billion).

According to the officials, taking the two airlines off the divestment list was a temporary move aimed at facilitating fleet acquisition. The government was committed to privatising the two airlines in the long term, they explained.

The two carriers were put off the sell-off roster in April 2003 after the finance ministry objected to their ambitious fleet expansion plans.

However, the civil aviation ministry told the divestment ministry that fleet induction was crucial for the two airlines, and the issue of their privatisation might be taken up later.

The plan to offload equity to financial institutions and banks was triggered by the lack of interest shown by foreign airlines to acquire stakes in Air-India.

In the case of IA, the existing foreign direct investment norms do not allow bids from international airlines.

It is also feared that a foreign airline may treat the IA and A-I networks merely as a feeder channel for its operations.

The government had toyed with the idea of offering financial institutions a 25 per cent stake in IA and a 10 per cent stake in A-I in 2001, when sell-off plans were being vigorously pursued for the airlines.

Parking minority stakes in financial institutions prior to roping in a strategic partner would have rendered the two airlines joint sector companies, a demand put forth by the bidders.

The current plan is essentially directed at A-I, which has better financial credentials than its domestic counterpart. A-I expects profits of Rs 100 crore (Rs 1 billion) for 2002-03.

It has also reduced staff by 4 per cent, besides implementing a voluntary retirement scheme and freezing recruitment of non-operational staff.