dailyO
Money

Why there are no takers for Air India

MG Arun
MG ArunMay 08, 2018 | 11:19

Why there are no takers for Air India

The wait for a new bidder for India’s national carrier seems to be never-ending. The Union government has modified the earlier clauses to attract foreign direct investment by divesting 76 per cent in Air India, but there are no takers yet for the airline. This is a major embarrassment for this government’s divestment drive since they were planning to make an example of this carrier.

Jet Airways has said it would not be participating in the Air India disinvestment process, becoming the second domestic airline after IndiGo to make such a decision. Reports suggest Tata Group, widely seen as a potential suitor for Air India, is unlikely to consider a bid for the state-run carrier as the government’s terms are just too onerous.

The ambitious strategic stake sale of loss-making Air India as well as its two subsidiaries seems to have run into rough weather with three potential bidders deciding to keep away, citing aspects of the deal not palpable for them.

Meanwhile, the government has extended the submission deadline for bids under Air India’s divestment process to the last day of this month.

The more the divestment is delayed, the more the airline will bleed. If one goes by the amount of money it bleeds every year — Rs 5,000 crore on an average — the airline is the worst performer among public sector enterprises. As of June 2017, the erstwhile Maharaja of Indian skies had bled Rs 52,000 crore of taxpayers’ money, enough for the government to bite the bullet.

The Centre then decided to opt for a strategic divestment of the airline. But the terms were tough. The government has stipulated the winning bidder cannot merge the airline with existing businesses as long as the government holds a stake.

air-india-copy_050818102711.jpg

The winner may also be required to list Air India, say reports, and would need to abide by conditions designed to safeguard employee interests, restricting its ability to cut staff. These have been big put-offs for bidders.

Who doesn’t know that Air India staff are highly unionised and have successfully resisted any attempts by previous managements to rationalise the workforce?

But things could be even worse for the airline. According to aviation consulting firm Capa India, Air India might even shut down, if its ongoing divestment programme fails due to the terms and conditions the government has set.

Capa says it’s critical for the Centre to amend the labour and debt conditions for the divestment process to succeed. This is crucial since the successful bidder will need to invest in restructuring and absorbing losses for several years, in addition to consideration paid for 76 per cent. Also, bidders may want to be ringfenced from possible political risks, which is also one reason why many are staying away.

The Modi government is into its final lap, and general elections are due next May. Why would an airline want to take the plunge at a time when the government is facing disquiet on multiple issues including sluggish jobs growth, deep distress in banking and agriculture sectors, and lacklustre progress of its big policies including Make in India, as well as a social backlash as manifested in the recent Dalit uprisings?

Capa warns that Air India is headed for losses in the range of Rs 9,750 crore to Rs 13,000 crore in 2018-19 and 2019-20. The only solution is to identify a suitor for the airline, but that’s turning out to be as cumbersome as trying to turn around the airline.

(Courtesy of Mail Today

Last updated: May 08, 2018 | 20:36
IN THIS STORY
Please log in
I agree with DailyO's privacy policy