IS ALLIANCE AIR A MILLSTONE AROUND THE GOVERNMENT'S NECK?SUBSIDIARIES DIVESTMENT

When Air India’s sale to the Tata Group marked the end of a long and costly public-sector chapter, one airline remained curiously behind, Alliance Air.

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Retained by the government in what many now call a policy miscalculation, the small regional carrier has become a symbol of how half-measures in privatisation can trap public funds in perpetuity. Originally designed to link India’s smaller cities and remote regions under the UDAN scheme, Alliance Air now struggles to stay airborne amid mounting losses, excess staff, and routes that make little commercial sense. With no clear roadmap for its future and limited buyer interest, policymakers are quietly debating whether it’s time to finally cut their losses or find a politically safe way to land the airline once and for all.

When the Indian government announced selling Air India to the Tata Group in 2021, it made a choice that now looks costly in hindsight: it kept the regional arm, Alliance Air, and placed it inside a special-purpose vehicle rather than including it in the Tata package. At the time, the decision was explained as a political and policy choice; the state wanted to preserve a vehicle for mandated regional connectivity under UDAN and to retain certain non-core assets separately, but that narrow calculus did not fully account for the practical and financial headaches of running a loss-making regional airline at scale. What was meant to be a public-service tool quickly became a legacy liability: an airline saddled with a handful of turboprops, a large complement of staff, route obligations that do not pay market rates, and an accumulating stock of losses that the state must finance until a viable exit is found. The original decision to retain Alliance Air rather than sell it alongside Air India is now central to the debate about who bears responsibility for policy outcomes that have commercial costs.