FIRST things first -- a Government has no business running an airline, that too a loss-making entity buried under a burden of debts. When that wisdom finally dawned upon the Government it started to sell-off the airline but was unwilling to part with 100% of its holding. The entire exercise, unwanted strings attached, was bound to fail and it did. Smarting from the dismal response from investors to buy 76% stake in national carrier Air India, the Central Government has finally tweaked the terms of sale and is ready to let go 100% stake now. A preliminary bid document for the strategic investment has been issued with March 17 as the deadline for submitting expression of interest.
This is a serious and praiseworthy move by the Government as it addresses many contentious issues that had marred investment sentiment in the last attempt to privatise Air India. The flag carrier is a huge brand but fell on bad days on the back of poor handling of affairs and lack of strategy to counter sectoral competition offered by private airlines when the aviation market opened up in India. The 2018 privatisation attempt had a lurking danger of political interference as the Government had decided to keep 24% of share in Air India and ancillaries.
The new deal on offer is much sweeter for the investors. Bidders can stake claim for 100% equity in Air India, entire stake in budget subsidiary Air India Express and 50% stake in ground handling arm Air India-SATS. Further relaxation in transfer of about Rs 23,000 crore debt instead of Rs 33,000 it wanted to transfer last time is also seen as a big positive to invigorate market sentiment. The Government has also allowed sale and lease-back of aircraft and permission to keep the same brand name by the new buyer. It is a welcome move as the new bidder can cash in on the sentimental legacy of the Air India. Air India has a large market presence in domestic as well as international destinations. Though it could not match up with the price competition on many routes within India, a few sectors still have the stamp of the ‘Maharaja’ which can be exploited by the potential owner.
The new buyer will be able to get hold of 121 Air India aircraft apart from 25 Air India Express fleet. Right from the start of operations any private player taking hold of the company will be entitled to use 4400 domestic airport slots, 1800 international airport slots within the country, and 900 foreign airport slots. It is a healthy offering for the new owner. One more hindrance that worked as one of the major factors in poor response to privatise Air India was the requirement of Rs. 5000 crore net worth for bidders. By scaling down the net worth requirement to Rs. 3500 crore the Government has opened up the field for more players. A lower net worth will expand the universe of potential buyers and Indian players will be more than willing to be a part as they would not have to meet the net worth criterion. The entity on offer for a lower net worth is a fully operational airline with functioning ancillary.
It is a lucrative proposition for the investors and more likely to expedite the sale. The Government needs to provide clarity on the transfer of present staff to the new buyer. Excess strength was flagged by potential buyers in the last divestment attempt. Air India has 17,984 employees of which 9617 are permanent staff. Of the permanent employees 36% are on the verge of retirement in the next few years. Any new buyer will seek a clear-cut policy on employee retention as it entails a major financial chunk to be disbursed as salaries and emoluments. The Government has signalled a positive intent with the new offer. It now needs an investor matching the same intent. A lot also depends on how the global economic scenario unfolds.