The government’s high-profile privatisation of Air India is in serious jeopardy after IndiGo, Jet Airways and SpiceJet declared that they would not bid for the airline. These Indian airlines part, there seems to be no interest from abroad as well.
On Wednesday, Gulf carrier Emirates Airlines told CNBCTV-18 that it has no plans to acquire any airline. The other big Gulf carriers -- Qatar Airways and Etihad Airways -- are mum about their interest.
Etihad already owns 24% in Jet Airways. Qatar has long said the only airline it is interested is IndiGo, India’s biggest.
The International Airlines Group (IAG, which controls British Airways and some other airlines) and Germany’s Lufthansa declined comment.
The government’s only hope could be Singapore International Airlines (SIA), which runs Indian airline Vistara partnering the Tatas. “Our priority is the further expansion of Vistara. However, we will keep our options open with respect to the proposed divestment of Air India," a spokesman said.
The Tata-SIA combine was one of the shortlisted bidders for Air India when the government launched disinvestment of the airline for the first time in the late 1990s. It later scrapped the process altogether.
‘Unfriendly’ Bid Conditions
Aviation analysts have blamed the “unfriendly” bid conditions for the lack of interest. “Serious corrections are required in the deal structure to make it work,”
Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG, told CNBC-TV18 on Tuesday. 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 and a mandatory IPO are some of the key challenges in the proposed deal structure, according to Dubey.
That means the only option for the government, which is offering to shed 76% stake in Air India and low-cost international unit Air India Express and 50% in ground handling unit AISATS, is to tweak the conditions for sale.
A person close to the development said that some “sweeteners” to the preliminary information memorandum (PIM) conditions may be in the offing. The government has been “in a state of panic” after it saw the interest in Air India wane drastically within days of details of the sale becoming public, said the person who did not want to be named.
Not a single prospective bidder has yet sent a query on the conditions laid down in the PIM, added this person.
The deadline for sending queries is April 16.
But it remains to be seen if the bid conditions will actually be recast to entice interest.
A government official close to development said no tweaks to the bid documents will be sent to the Union Cabinet. Another senior official had said last week that there was no sense in tweaking the PIM to suit an individual bidder’s needs.
Both the persons spoke on the conditions of anonymity.
If the Air India sale fizzles out, it will not be without precedent.
After witnessing a similar disinterest during the proposed disinvestment of helicopter company Pawan Hans last October, the government was forced to withdraw the PIM for the sale.
Then, only one bid came.
As it is happening with Air India, the employee unions of Pawan Hans too opposed the sale.
Here are some of the vital conditions set out in the Air India PIM:
Net Worth: A minimum net worth of Rs 5000 crore is mandatory for a bidder. Besides, the bidder must also have reported positive profit after tax in at least three of the immediately preceding five financial years from the Expression of Interest deadline. Three-year Lock-in: The bidder will have to commit to a lock-in of its entire shareholding in Air India and in the special purpose vehicle (in case the investment is made through a special purpose vehicle by a consortium or otherwise) for three years from acquisition. The bidder cannot cede management control of the airline and of the special purpose vehicle for these three years. Retain the Air India Brand: The bidder will have to continue using the 'Air India' brand for a minimum number of years, which will be explained at the RFP stage. Government Exit: The EOI states that the government intends to divest its residual 24% shareholding through the "process of dispersed disinvestment (i.e. would not be sold as a block) on such terms as may be prescribed in the RFP. But the important point to note is that the bidder may be required to list Air India. Debt: The government proposes to leave Rs 33,392 crore of liabilities with Air India and AI Express. These include current liabilities and more than half of the remaining debt backed by aircraft assets.
One prospective bidder for Air India that CNBC-TV 18 spoke to said almost all of these conditions are deterrents and the government needs to soften them. This bidder emphasized the part that insists on the government retaining 24% stake and the three-year lock-in clause as serious constraints on buyers.
With Indian airlines cold to the Air India sale and only one global airline seemingly interested, the government may be forced to bring changes to the sale conditions.
Sindhu Bhattacharya is a journalist based in Delhi who writies on a range of topics in business and economy