Simplify deal structure to attract bidders for Air India, says KPMG’s Amber Dubey

The Air India privatisation is a great move by the Modi government. It was long overdue. It is unfortunate to see India’s Big 3 airlines drop out at the expressions of interest stage itself. Serious corrections are required in the deal structure to make it work. The government has the option to have a round table with their customers – the leading Indian airlines, take their feedback, modify the bid conditions and make it reasonable.  The government also has the ‘do nothing’ option of just going ahead regardless of the outcome.

The huge Rs 33,000 crore debt, government stake of 24%, full transfer of Air India staff, operating Air India at an arm’s length, a mandatory IPO, freezing the bidder’s shareholding structure at the EoI stage without any due diligence are some of the key challenges in the proposed deal structure.  These are man-made problems and hence solvable.

There’s some talk that DIPAM (Department of Investment and public Asset Management, the government department that oversees sale of government assets) may have to go to the Cabinet for major changes.  Well, going back to the Cabinet is not like going to planet Mars. Let us do it.

Airline deals do take years to consummate, especially legacy airlines of the size and complexity of Air India.

Simplifying the deal structure to attract at least 3-4 serious bidders is in the government’s own interest.

Yes, it has huge untapped assets in terms of fleet, slots, market share, network, qualified staff etc.  These can be leveraged better when combined with a strong airline.  But the bidders don’t want to jump in to rescue Air India and die in the process.  The government needs to offer a clean deal with no debt, no forcible transfer of employees and no operational interference.  The premium received in the bids would be far higher.  The new owner and Air India will make a formidable hub carrier that India always lacked. India’s failure as a natural aviation hub was lapped up immediately by smart carriers in the Gulf and Asean.

After the exit of IndiGo, Jet and SpiceJet, things look bleak.  Bidders may be wary of the question – ‘If it’s so good, why is everyone running away?’  The government should talk to their customers – the airlines – and work a way out.  Ultimately, only one bidder will win, but a better competition means the government and the real owners of Air India – the silent Indian taxpayer – will earn more.

There’s no official word from them.  I am not allowed to speculate.

To be brutally honest, the successful privatisation of Air India is a necessity and not a choice.  It will free up almost Rs 5,000 crore of taxpayer money annually, which can be better spent in building schools and hospitals in our villages than in providing life support to a sick PSU.

The government has to make the deal work.  Let's hope wisdom prevails and bid conditions are simplified to attract more competition.