Tuesday, Nov 29, 2022

Why no one wants Air India

On March 31, as the deadline for submitting Expressions of Interest ran out, there were no bidders for India’s flag carrier. The government’s terms — including retention of 24% stake — are likely to have been a deterrent.

Why no one wants Air India On March 28 this year, the government came out with a preliminary document seeking bids and, in the 19 days that followed, received over 160 queries from various parties seeking clarifications about the disinvestment process

In June 2017, shortly after the Centre announced its intention to divest a controlling stake in Air India, unsolicited interest poured in from airlines such as IndiGo and various ground handling firms, both domestic and international, for specific pieces of the flag carrier. On March 28 this year, the government came out with a preliminary document seeking bids and, in the 19 days that followed, received over 160 queries from various parties seeking clarifications about the disinvestment process. But after all this activity, the government announced on May 31 that at the end of the deadline for submitting Expressions of Interest (EoIs), it had received no bids from any entity to acquire 76% stake in Air India. What went wrong?

READ | Air India divestment: Deadline expires, no bids for airline

The 24% problem

While the Rs 33,000-crore debt that was to be bundled with the airline was initially seen to be a major hurdle, industry analysts believe it was the government’s decision to retain 24% stake that ultimately proved to be the big deterrent. In clarifications sought by interested bidders, as many as 11 questions pertained to the government retaining the minority stake. “We understand that the objectives of the government in retaining a 24% stake are predominantly financial. Please outline these financial objectives and also explain any non-financial objectives for which the retention of a stake is considered to be important,” an interested party asked. In response, the Civil Aviation Ministry said: “It is a considered decision by Government of India to retain 24 per cent stake.”

Subscriber Only Stories
UPSC Key- November 29, 2022: Why you should read ‘Executive Vs Judiciary’...Premium
Delhi Confidential: Ahead of Gujarat polls, BJP worries about NOTA votesPremium
Agrarian Punjab diesel-driven; Delhi opts for cleaner optionsPremium
The shadow of 1979: Iran and Saudi Arabia are fighting Islamism; Pakistan...Premium


While inviting EoIs on March 28, the Ministry outlined the parameters for the bids. Qualified bidders would have moved on to the Request for Proposal stage, where the finer details of the stake sale were to be shared. Bids had also been invited for the sale of Air India’s 50% stake in AI-SATS, a ground-handling subsidiary of Air India and Singapore Airport Terminal Services, and a 100% stake in Air India Express, AI’s low-cost international arm.

In pieces, not whole

What had generated significant buzz was the possibility of the airline being broken up for sale. In its letter to the government a day after the union cabinet granted in-principle approval for strategic disinvestment, IndiGo said it would be interested in the international operations of Air India and Air India Express. However, a week after AI’s preliminary information document was published, IndiGo announced it was pulling out of the race because the government’s plans for disinvestment did not suit its own, and it didn’t “have the capability to take on the task of acquiring and successfully turning around all of Air India’s airline operations”. Soon after this announcement by the country’s biggest airline, Jet Airways, the biggest full-service carrier, too, said it wouldn’t participate in the bidding.

Too many employees

AI has the largest number of employees per aircraft among Indian airlines. As per the preliminary information memorandum, AI had 26,978 employees (including permanent, contractual, casual, and on-deputation staff) for a fleet of 115 aircraft — or 234 employees per aircraft. In comparison, as of March 31, 2017, IndiGo had 111 employees per aircraft (for its fleet of 131), Jet Airways had 142 (for a fleet of 112 aircraft), and low-cost carrier SpiceJet, 140 (for 49 planes). The employees-per-aircraft ratio is a key metric used in the industry to identify the operational efficiency of an airline. Eventual reduction of contractual employees was one of the measures to be undertaken by Air India as part of its turnaround plan.

“The successful bidder will have to plough significant funds into enterprise-wide restructuring, requiring capital expenditure in enhanced products and services, as well as fleet expansion. Returning the carrier to profitability is likely to take at least 2-3 years, during which time the new owner will have to absorb a couple of billion dollars of losses. Faced with such a commitment, it is perhaps not surprising that bidders baulked at the offer terms which expose the investor to labour risks; limit the opportunities to create synergies with a strategic investor’s other airlines; and which leave open the prospect of political interference on strategic and day-to-day matters as a result of the government’s retention of a 24 per cent shareholding,” aviation consultancy firm CAPA India said in a June 4 research note.

First published on: 05-06-2018 at 12:31:01 am
Next Story

FIFA World Cup 2018: Poland’s Kamil Glik in doubt for World Cup due to injury

Latest Comment
Post Comment
Read Comments