The flop show on the proposed disinvestment of the government's majority stake in Air India should not have come as a surprise; it was actually a foregone conclusion.
Not a single bidder showed up for the Maharaja this evening, when the deadline to place preliminary bids expired.
The government had offered to sell a 76% stake in AI and AI Express besides 50% in AISATS, as a package deal.
There had been enough indications all along that most prospective bidders - Indian airlines or airline consortia - were unhappy with virtually most of the terms of the sale defined in the Preliminary Information Memorandum (PIM).
So did political compulsions force the government to go through the motions while ignoring what was staring it in the face? Or was real intent to disinvest the airline lacking, right from the start?
The government’s high-profile privatisation of Air India was in jeopardy right after the PIM was released, after domestic airlines IndiGo, Jet Airways and SpiceJet declared that they would not bid for the airline.
Gulf carrier Emirates Airlines cried off the sale, while the other big Gulf carriers -- Qatar Airways and Etihad Airways -- remained mum about their interest.
It was the same for European airlines. At that time, the government’s only hope seemed to be Singapore International Airlines (SIA), which runs Indian airline Vistara partnering the Tatas and had said it was keeping options open on AI sale.
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.
Sources tell us there was considerable "arm twisting" by senior government functionaries to get the Tata-SIA combine to participate in the bidding process.
They say the combine was evaluating the option but decided to not participate quite close to the bid deadline. Reason? Unfriendly terms of sale and the asking price.
‘Unfriendly’ Bid Conditions
Aviation analysts have blamed the “unfriendly” bid conditions for the lack of interest. The huge Rs 33,000 crore debt which the airline entity being sold would retain, government's insistence on continuing to hold 24% stake, conditions about AI's employees and their future liabilities, operating Air India at an arm’s length from current businesses of a prospective bidder and a mandatory IPO .
These were seen as key challenges in the proposed deal structure. There were enough hints for the government to tweak sale conditions.
The Air India sale has fizzled out as of now, but it is not 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 of this company too. Then, only one bid came. As it is happening with Air India, the employee unions of Pawan Hans also 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 were deterrents. 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, the government will have no option now but to go back to the drawing board and start over.
The big question is: With less than a year left for the present government's term and a long revaluation process ahead, will the AI sale even happen?
Sindhu Bhattacharya is a journalist based in Delhi who writies on a range of topics in business and economy