Air India Disinvestment: This Time The Government Will Leave Nothing To Chance

Once bitten, twice shy. The government seems to have incorporated crucial learnings from the earlier debacle in its attempt to sell off Air India (AI). Remember, when the Atal Behari Vajpayee government tried to bring in private investors in the flag carrier in 2001, vociferous political opposition coupled with vested interests stymied the sale. It is no surprise then that this time, under the National Democratic Alliance (NDA) government at the Centre, the attempt is to keep even crucial stakeholders, such as the Ministry of Civil Aviation, at an arms’ length.

The primary mover in the strategic disinvestment of Air India this time is DIPAM (Department of Investment and Public Asset Management), part of the Finance Ministry. Sources indicated the Ministry of Civil Aviation and its officials have no knowledge of key indicators like reserve price, criteria for selecting bidders etc. These sources said the government was wary of the Civil Aviation Ministry’s involvement since it “may not want to let go of Air India”. So all key decisions, including contours of the sale, appointment of transaction advisors, valuation and reserve price etc are being taken at the level of DIPAM, with an Air India Specific Alternate Mechanism (AISAM) also being consulted. In AISAM, the two aviation ministers are included along with other key ministers. Besides, there is a group of secretaries, which includes the Civil Aviation Secretary, which is also part of the disinvestment process.

Air India began life as Tata Airlines, founded by J R D Tata, in 1932; it became a public limited company and was rechristened Air India in 1946; it was nationalised in 1953. In 2001, the government invited bidders for a 40 per cent stake in the airline, with a 26 per cent foreign airline cap. But the sale process kept getting derailed, first due to unions and employees being assured continuity, then due to the foreign airline cap which made it mandatory for the bidder to have an Indian partner and lastly because of shrill political opposition to ‘foreign’ government getting a toehold in the airline.

Midway through the process, Singapore Airlines or SIA (in partnerships with the Tatas) remained the sole contender for Air India as other bidders pulled out of the race. But SIA too later abandoned the plan due to “the intensity of opposition to the privatisation of Air India from various quarters including certain sections of political groups, trade unions and of the media”. The Hindu piece quoted above explains how the back story of changing moods against foreign airlines was retold: A Delhi-based chamber of commerce wrote to the then prime minister against foreign investors being allowed to acquire more than 25 per cent stake in Air India, as this was the rule in the US, China, Thailand and Mexico. Senior parliamentarians sent similarly-worded recommendations. After the Air India sale was scrapped, private airlines – which had also opposed the move, obviously flourished.

So, perhaps, mindful of how intense rivalry, conniving politicians and MPs ensured the sale was stopped the last time, the government of today wants the process to succeed by handing over the reins to DIPAM.

Meanwhile, sources quoted earlier also said the government will retain a stake in the airline post divestment, in the hope that the new owner can unlock its “true value”. And eventually provide a better return on the investment to the government than it is getting at present. At the moment the government is only pumping in money into AI without getting anything back in the form of a dividend.

A clear picture on how much stake the government will retain will emerge when the Expresssion of Interest (EOI) is released later this month. The EOI will specify all details including how much stake the government wants to divest, which entities within Air India are being divested, what the liabilities of the airline are. But the EOI will not lay down the valuation of the airline, the sources indicated. A strategic disinvestment means the government will offer at least 51 per cent to the private entity. This time, up to 49 per cent foreign investment is allowed. As for employees, the government has only assured them of jobs, without going into details of any voluntary retirement scheme package etc, till now.

The government has decided to break up Air India into four distinct entities – the airline, subsidiary Air India Express and ground handling JV AI-Sats. The engineering subsidiary, the ground handling subsidiary and domestic regional arm Alliance Air are the other three parts.

The sale process is expected to be completed by the end of calendar year 2018. AI has Rs 50,000 crore debt on its books, almost an equal amount in accumulated losses but owns assets in the form of owned aircraft, land parcels, bilateral traffic rights and lucrative slots at various airports around the world.