The airline had been pushing for a sale of stake in HCI as the resultant proceeds could service its working-capital requirements and help in stemming the bleeding of its balance sheet. Selling the wing was the perfect solution for Air India to meet its fund requirements as Hotel Corporation had staged an impressive turnaround in 1994-95 after a gap of 11 years, reporting a Rs 4.47-crore net profit. The net then soared to Rs 46.01 crore in 1995-96. But a slump in tourist inflow, however, saw the net drop to Rs 30.74 crore in 1996-97.

The hotel chain, which has an authorised capital of about Rs 41 crore, had alreadypaid back most of its loans to banks and institutions. According to a presentation made by the hotel major to the Air India board last year, it owed only Rs 31.97 crore, which it planned to clear by 1998-99.

The proposed divestment, however, was strongly opposed by the then Hotel Corporation's managing director Kamal Sharma. His contention was that the airline should retain the wing as it was the company's only profit-making entity. He had also claimed that the hotel major could easily raise Rs 1,000 crore by approaching the market as a separate entity. In fact, Sharma had also applied to the Public Sector Enterprises Board to term the Hotel Corporation a "miniratna" and treat it as a separate company.

HCI has four hotels, two in Mumbai and one each in Delhi and Srinagar, with a total of 1,280 rooms and two loss-making flight kitchens at Mumbai and Delhi. Its turnover is pegged at Rs 125 crore. The hotel chain was planning to sell its Srinagar property to the Jammu and Kashmir government for Rs 152 crore,while the two flight kitchens were to be leased out on a management-contract basis. But with the proposed privatisation of HCI and the suspension of Sharma all the previous plans have been scrapped.

Industry analysts are, however, concerned that the airline will not be able to get a very good price for divestment. This is because HCI's net has steadily declined in the past three years. Sources at Air India said that the net profit has dipped by more than 50 per cent this year to around Rs 18 crore in 1997-98. Therefore, industry experts are of the view that HCI will not be able to raise more than Rs 500 crore.

For Air India, however, any recovery of funds is welcome. As a result, the airline is willing to sell of the wing right away rather than wait for it to become a more profitable company and then sell it at a better price.