Debt-laden Air India is up for grabs but potential bidders blow hot and cold
The Indian government’s ambitious plan to privatize debt-laden Air India has run into rough weather with no takers in sight. And with unionized employees as well as political parties kicking up dust, and experts warning against any further delay in finding a suitor, chances are the 86-year-old airline may fall flat after the May 31 deadline.
Desperate to meet its Rs 800-billion divestment target in the current financial year beginning April 2018, the Narendra Modi administration on March 28 offered to sell 76 percent of its equity stake in the bankrupt national carrier, along with its profit-making low-cost arm, Air India Express, and its ground-handling subsidiary, AISATS, an equal joint venture between Air India and Singapore-based SATS.
But even after diluting its terms and extending the bidding deadline from May 14 to May 31, the stake sale has drawn a blank, thanks mainly to two sticking points concerning the huge debt and the bloated staff strength of the famed airline once called the ‘Maharaja of the skies’ but now being kept afloat with taxpayers’ money.
With a fleet of 130 aircraft and boasting 2,800 international prime-time slots per week in 39 destinations (including Dubai, Sharjah and Abu Dhabi) and 4,000 domestic slots in 54 destinations, Air India, of course, has been making operating profits for the past three years.
But the flagship carrier bleeds Rs 5 billion every year and has amassed a debt in excess of Rs 50 billion, of which Rs 33 billion will have to be borne by the bid winner. No wonder, domestic and foreign airlines which first jumped on the bandwagon to buy the former ‘jewel on the crown’ later backed off.
IndiGo, a low-cost domestic carrier and India’s largest airline, pulled out saying it was eying only the international operations. Another Indian carrier, Jet Airways, which was in the race by planning to form a consortium with Air France-KLM and Delta Airlines, also soon cried off but gave no reason for its volte-face. Tata Group, one of India’s largest conglomerates, has also found the government’s terms too onerous to turn around the airline which is in the red.
Though Indian companies may not participate in the divestment process, foreign Airlines have kept Air India’s hopes alive but the prospective deals are progressing at a snail’s pace. Etihad Airways, private equity firm Warburg Pincus and Singapore’s sovereign wealth fund, GIC Private Limited, are scouting for Indian partners because government regulations stipulate that control of Air India must remain with an Indian entity.
What has also thrown cold water on potential foreign bidders is the fact that despite retaining a 24 per cent stake, the government may poke its nose in management till its complete exit.
Again, with general elections scheduled after a year, the government will not like to give free hand to the buyer to retrench the staff and antagonize the 12 powerful unions protecting Air India’s 17,000 employees.
Indeed, unions have been organizing lunch-hour protest meetings with members fearing job losses wearing ‘Save Air India’ badges and using Twitter, YouTube, Facebook and Instagram platforms to urge other employees to help prevent the airline from hitting air pockets. On May 1, the International Labour Day, employees in Mumbai took to the streets to oppose the privatization move.
While opposition parties like the Congress and the Trinamool Congress have asked the government to withdraw the ‘distress sale’, the ruling Bhartiya Janata Party’s ideological parent, the Rashtriya Swayamsewak Sangh (RSS) and its economic think tank, Swadeshi Jagran Manch (SJM), do not see eye to eye with the Modi regime over the terms of the sell-off.
If RSS chief Mohan Bhagwat has raised many eyebrows by categorically stating that Air India should not be sold to a foreign buyer, SJM has also opposed the divestment plan and is soon coming out with alternative ways to revive the airline on the breadline whose market share has fallen to about 13 per cent compared to 35 per cent just over a decade ago.
On May 10, as the Indo-US aviation summit was on in Mumbai with no American carrier ready to bid, the worst warning over delay in identifying a suitor for loss-making Air India came from the Centre for Asia Pacific Aviation, a leading aviation consultancy, which has warned the government that the belly-up national carrier is headed for staggering losses in the range of Rs 9,750 crore to Rs 13,000 crore in 2018-19 and 2019-20, and failure to divest its stake could see the airline closing down.