Air India privatisation. The Government this year had announced to sell its 100 per cent shareholding in Air India along with Air India’s 100 per cent holding in Air India Express and half of the share in Air India-SATS, a JV with Singapore Airport Terminal Services.
Since then, everyone, including the TATAs, has their eyes glued to the bidding game of Air India sale. Moreover, an employee consortium led by Meenakshi Malik, Air India’s Commercial Director, along with the support of 219 employees has been part of the bidding group. On one hand, employee unions including the pilots and crew are opposing the disinvestment, and on the other hand, this employee consortium is planning to buy 51% stake.
What is so interesting about the Air India sale?
The Air India privatisation attempt goes back to 1990s with the recommendations of Disinvestment Commission of India to reduce government shareholding in the airline to 40%. The bureaucratic hurdles and increased airline competition led to the failure of disinvestment attempt then. Even the recent strategic disinvestment attempt by the government is the second one in less than 2 years interval.
In more than five decades of its existence, Air India has been able to attain a moderate reach and network coverage in the domestic market. This will immensely help the potential acquirers to gain considerable scale upfront. Other benefits associated with Air India are – some of the prime landing slots in busiest airports across the world, wide-bodied aeroplanes, and a about a half of market share in international traffic among the Indian airlines.
The airline brings a lot of debt too, counted at about Rs 320,580 million, but most of it is likely to be borne by the government.
The Union government has sweetened the deal for investors as the Air India Ltd sale evoked no response in the earlier 2018 disinvestment attempt.
What is the government doing now to make the Air India privatisation successful this time?
To begin with, 100% of Air India is out for sale, compared to just 76% earlier. This has removed the fear of any government interference among prospective bidders.
Also, the Government has now permitted the bidders to quote enterprise value instead of equity value. The government has also permitted the prospective bidders the flexibility to think over the level of debt they wish to assume. This flexibility has been given on account of losses incurred by the whole aviation industry due to the COVID pandemic. With these huge losses, fixing the debt at any level could have reduced the universe of bidders.
Earlier, a bidder was required to have a net worth of ₹ 50,000 million which has now been reduced to ₹ 35,000 million. The earlier condition for a bidder to have a track record of profitability for at least three years of the previous five has also been done away with.
Another modification in the bid conditions is that the successful bidder will have to deposit at least 15% of their bid amount in cash with the government prior to the share transfer. This has been done to ensure that a successful investor has skin in the game.
What will be the impact of Air India privatisation on different stakeholders?
If the Tatas or Spicejet, the names in news among prospective bidders seal the deal, it could pave way for consolidation in the aviation sector. However, with the huge outstanding debts, any acquirer would need to make radical operational changes and cut costs to make the business viable. The first move will be a pruning of operations to ensure profitability for the airline.
For the end consumers, pruning of operations on certain loss-making domestic or international routes would mean lesser flight options or higher fares. If we look at from a different angle, the huge tax these end consumers pay towards keeping this loss-making PSU functional would be saved towards other productive services.
For the employees of Air India, the deal may not be all glittery, considering the bloated staff strength of Air India. The airline has 9,617 as permanent staff, 36% of which will retire in the next 5 years. It remains unclear whether the employees would be retained by the new investor.
Despite the strong political will for Air India privatisation, the government has received opposition even from within. Employee unions have always opposed stake sale. The condition that foreign stakes will be limited to 49% with the remaining capital to come from India market remains another hurdle. However, given the new relaxations by the government and the enthusiastic response by interested buyers, it looks like an optimistic picture in making.
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