Nacil May Divest 15% Via IPO, Put 5% For Esop

BANGALORE: The newly-created holding company for national carriers Air India and Indian, National Aviation Company of India (Nacil), may offload 10-15% stake through an initial public offering (IPO) in 2008 to fund expansion and take on competition from private airlines, civil aviation minister Praful Patel told ET. The offer could involve issue of fresh shares and dilution in existing equity of Nacil.

"We are yet to take a view on the exact mode of equity dilution. Accenture and Ambit Finance, the consultants appointed to handle the merger, are now doing the valuation and we expect them to give a report by the year-end," Mr Patel said.

The IPO will be preceded by an offer of about 5% of equity to the 33,000 employees of the merged entity, Mr Patel said. Nacil, created in March, expects the integration process to be completed within two years. It has a paid-up capital of Rs 145 crore. It will fly under the Air India brand.

Air India and Indian have a combined fleet strength of 125 aircraft, about a third of the national total. They have ordered 111 more aircraft.

Mr Patel also said an empowered group of ministers examining the draft civil aviation policy will meet later this month and is expected to reach a conclusion on the rules governing qualifications to fly overseas. The criterion requiring five years of domestic service only allows Air India and Jet to fly abroad as of now. Newer private airlines want this rule to be relaxed so they too can commence overseas operations.

Furthermore, the limit on foreign direct investment (FDI) is also likely to be increased in select segments, but foreign airlines will not be allowed to take over Indian carriers just yet. "Why should they be gobbled up by international carriers?" Mr Patel asked.

Cabinet approval will be sought to allow 100% FDI in helicopter operations, seaplane companies, pilot training and maintenance, repair & overhaul (MRO) facilities. The foreign investment cap on cargo operations could be raised to 74%. India currently allows up to 49% FDI in most segments of civil aviation, barring airports, where the ceiling is 74% for existing ones and 100% for greenfield projects.