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Why Air India is finding no takers

Poulomi Saha
Poulomi SahaApr 13, 2018 | 15:22

Why Air India is finding no takers

It seems the government’s ambitious plan to privatise the Air India has hit rough weather.

Two domestic players, which earlier showed interest in buying the Maharaja, now seem to have developed cold feet after reading the preliminary information memorandum (the bidding document) released by the Ministry of Civil Aviation on March 28 for the proposed divestment.

Both Jet Airways and IndiGo have backed out of the bidding wars after the government threw open the process to acquire 76 per cent management control and equity ownership in Air India last month.

In a statement released recently, IndiGo’s president and whole time director Aditya Ghosh said, “From day one, IndiGo has expressed its interest primarily in the acquisition of Air India’s international operations and Air India Express. However, that option is not available under the government’s current divestiture plans for Air India.

"Also, as we have communicated before, we do not believe that we have the capability to take on the task of acquiring and successfully turning around all of Air India’s airline operations.”

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Following suit, the Jet Airways also expressed its inability to make a bid. “We welcome the government's move to privatise Air India. It is a bold step. However, considering the terms of offer in the information memorandum and based on our review, we are not participating in the process,” the airline’s deputy CEO Amit Agarwal said in a statement released on Tuesday (April 10).

But the government isn’t yet perturbed with this growing expression of non-interest. Speaking on the sidelines of the CII Annual Summit 2018 recently, civil aviation secretary RN Choubey said the government wasn't yet considering extending the deadline of May 14 for the final EOIs (expression of interest) to be locked in. In the wake of IndiGo making public its interest only in Air India’s international operations, Choubey added: "Presently, we are not looking at the option of splitting Air India's operations."

The government currently has put Air India, along with its equity shares in two subsidiaries AIXL (Air India Express Limited) and AISATS (Airport Services Private Limited) under the hammer.

The government, however, is keenly watching developments that suggest some international airlines may be interested in throwing their hat into the ring. If reports are to be believed, British Airways, Lufthansa and Singapore Airlines (already in a joint venture with Tata Sons that runs Vistara) may be exploring options of joining hands with Indian industry players so they can make a bid while fulfilling the requirement of leaving “substantial ownership and effective control” of the airline with an Indian national, as mandated by the recent Cabinet decision that approved 49 per cent FDI in Air India.

At a press conference in January, Vistara CEO Leslie Thng had said the airline's promoters were keeping "an open mind" about Air India’s acquisition. The foreign airlines, which also includes Etihad, as per some unconfirmed reports, are already in conversation with the Ministry of Civil Aviation-appointed transaction advisor for the sale, Ernst & Young.

They want to understand if it makes good business sense for them to officially jump into the fray. AI has a total debt of around Rs 50,000 crore. Under the terms of sale issued on March 28, bidders for the airline and its arms will have to take over a debt of Rs 24,576 crore and current liabilities of Rs 8,816 crore.

But there is growing noise against the government’s privatisation of the national carrier.

Former Union minister and Congress leader Manish Tewari is the latest to join the chorus. Speaking to India Today, Tewari said divestment of Air India is “not a sale, but a sell-out”. "This is worse than a garage sale. Indigo and Jet were never serious players. Instead, imagine the logo of British Airways, our erstwhile imperial masters emblasoned across the Maharaja."

Tewari’s theory that IndiGo and Jet Airways’ "non-bids" had more to them than meets the eye, finds resonance with a newly formed consortium of Air India employee unions (except the two pilots’ groups) that are vehemently opposing the sale of the airline.

A press statement released late night on Wednesday by the Air India Joint Forum Against Privatisation read, “The so-called probable buyers are using arm-twisting tactics so as to put pressure on the government to succumb to change the terms and conditions best suited to them and then Air India is sold for a song.”

Speaking on condition anonymity, a spokesperson for the forum said, “It's (Air India sale) like you are selling your flat in a Dharavi slum. No self-respecting nation could throw away a pubic sector unit like this. What happened to the financial restructuring and turnaround plan the previous government had devised?”

The next stage, in fact, after the initial bidding process is over on May 28 with the announcement of the winning bid, if any, will entail a request for proposal (RFP). It is likely to spell out details about the government's stand on the Air India board and employee protection measures, the debt/liabilities scenario, among others.

The union’s opinions here will have serious bearing on the future course and if union representatives are to be believed, the ongoing meetings with CMD Pradeep Kharola aren’t making much headway.

The troubles for Air India and the government don't just end there.

If sources within the parliamentary standing committee on transport, tourism and culture, which is reviewing the process of sale of Air India, are to be believed, then the government’s sudden opening of bidding wars will be hauled over the coals at the committee’s next meeting.

The Committee had earlier recommended holding off divestment of Air India for the next five years since its operating profits seemed to be making a turn for the good of late. Sources suggest non-BJP committee members are upset that the government chose to not wait for their final report and put Air India under the hammer officially. India Today reached out to Trinamool Congress MP Derek O’Brien, who is chairman of the standing committee, for further comments but he declined.

Last updated: April 13, 2018 | 19:47
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