Air India Sale: Private Players Play Hardball as Deadline Looms Large

The Modi government had extended the deadline for receiving expressions of interest (EOI) from bidders interested in buying Air India (AI) to 31 May.

But it is reported that the government is yet to receive a single formal EoI — even after the debt-laden “national carrier” was paraded around the world in “road shows” to elicit interest from international airlines, according to the Business Standard (BS). Executives of EY have reportedly been meeting the management of international airlines, including Lufthansa, Air France-KLM and Singapore Airlines. As part of the road shows, there have been presentations to explain the sale process and conditions, etc.

On offer is 76% equity stake in AI — along with 100% stake in AI’s subsidiary Air India Express Limited and the 50% holding in joint venture Air India SATS Airport Services.

But the prospects currently seem worse while the deadline (which was extended from the initial date of 14 May) looms large, because even the international airlines that were reportedly interested earlier are now unlikely to bid. Meanwhile, no Indian company has still come forward.

The eligibility criteria for the interested bidders is a minimum net worth of Rs 5,000 crore and net profit for three preceding years. Indian companies can bid either solo or form a consortium among themselves or with foreign companies, though the majority stake must be held by an Indian firm.

But IndiGo, the one domestic airline that was likely to be eligible to bid solo and had earlier expressed interest in buying AI, backed out saying it was only interested in the international operations of AI and not the entire package being sold. After that, Jet Airways too declared it would not participate in the bid, citing the high debt burden and other “unfavourable” bid conditions.

Now the BS reports that Lufthansa is now interested in bidding for Italian state airline Alitalia rather than for AI. Air France-KLM, which was said to be likely to bid for AI in a tie-up with Jet Airways, is now “unlikely to bid as it has been embroiled in a severe labour unrest issue, which has seen the resignation of Air France Chief Executive Officer Jean-Marc Janaillac.” British Airways has expressed reluctance to bid as long as the 24 per cent stake of the Indian government remains.

As for Singapore Airlines, its joint venture with Tata Sons Limited, Vistara has been making mounting losses. And with Vistara “planning its next stage of expansion through an aircraft order”, Singapore Airlines might not bid for AI.

The BS report says that “the overall risk-taking appetite” in the aviation industry has decreased due to “a long stretch of high fuel price environment.”

But it appears that the private players seems to be playing hardball — with the aim to push the Modi government to take on more or even all of the debt.

AI currently has a total debt of more than Rs 52,000 crore and has been suffering net losses — although it has been making increasing operational profits for the past three years and has never defaulted in its loan repayment.

The Modi government has already declared that 50% of the debt will remain with the central government to sweeten the deal for the private players. But the private parties are not happy with this much.

The new owners would still be left with a debt burden of around Rs 24,600 crore, on account of the excessive aircrafts that were bought under civil aviation minister Praful Patel during the UPA-I regime, along with current liabilities of more than Rs 8,800 crore. This means a total burden of debt and liabilities of more than 33,300 crore will stay with the new owners.

On the other hand, it is important to remember that AI continues to hold extremely lucrative slots at prime airports and traffic rights internationally, with a market share of around 17% in the overseas services from India, which is the highest among Indian carriers.

It has a fleet of 115 aircrafts and more than 6,200 slots for domestic and international flights. Also, it has been making rising operational profits for the past three years.

Nevertheless, there seems to be tremendous pressure on the government to “amend the labour and debt conditions for the divestment process to succeed,” as aviation consulting firm CAPA India.

This ‘amendment’ is basically private players wanting the government to take on the remaining debt, and to remove the employee protection clause, which is minimal in the first place, offering a lock-in period of one year during which the new owners cannot fire the existing employees, who are around 27,000 in number. 

Recently, the government did say that it is open to calling off the entire sale if “bids do not meet expectations.”

Once again, this returns us to the question of why is the government selling off AI?

The BJP-led NDA government had announced the sale on 28 March — after the previous Congress-led UPA governments deliberately destroyed the airline over years, mainly by buying excessive aircrafts at colossal loans, merging AI with the domestic Indian Airlines (both of which were market leaders in their own right) and giving away lucrative routes to private airlines.

When the government found no takers, it extended the deadline apart from easing a few other bid conditions.

Once AI is privatised, there will be no public-sector airlines left in the country.

This means there would be absolute monopoly of the private airlines in the air travel market. This means there would be no checks on the profiteering ways of the private airlines, in the absence of a public-sector alternative. One must remember that private companies operate with the sole aim of increasing their profits while cutting down their costs.

Once there is private monopoly, not only will it be difficult to keep a check on prices and quality of the service, but there will be no one to take care of the loss-making routes in the country. Private airlines also prefer to keep away from loss-making routes — routes that connect some of the remotest areas in the country.

In fact, the most effective way to have a well-functioning private sector that is efficient and satisfies the consumers is to have a healthy and competitive public sector.

This is actually the strongest argument for not privatising AI. So when the airline is not finding any private takers, it is a good time for the government to reconsider privatising AI and realise that it is the favour of the country and its people retain the “national carrier” in the public sector.