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Terms likely to be sweetened as Air India fails to woo suitors

The Indian government, which has failed to woo even a single suitor for its loss-laden national carrier, Air India, has started clearing the decks to launch the sale again after sweetening the stringent terms, which put potential buyers to flight.

With the humiliating fiasco blotting Prime Minister Narendra Modi’s copybook ahead of the general elections next year, the administration is now bent on finding the highest bidder by August and wash its hands of the 86-year-old ailing airline by December.

The civil aviation ministry has asked the transaction advisor for the sale process to find out the reasons why the move to sell 76 percent of the equity stake of the government in Air India could not attract Indian or foreign buyers.

Taxpayers’ money

In order to make suitable changes in the provisions of the Preliminary Information Memorandum, an asset valuer also has been told to provide the value of assets of the bankrupt airline buried under the mountain of a Rs 500-billion debt and running round in circles with taxpayers’ money.

According to civil aviation minister Suresh Prabhu, the inputs of both these advisors will be then taken to the Air India Specific Alternate Mechanism comprising ministers of civil aviation, finance, and road transport for determining the final floor price below which the flagship carrier will not be sold.

Divestment target

In a desperate hurry to meet its Rs 800-billion divestment target in the current financial year beginning April 2018, the government is banking on the frantic sell-off that could fetch a good Rs 100 billion what with the once-famous ‘Maharaja of the skies’ bleeding Rs 5 billion year after year.

The Centre for Asia Pacific Aviation, a leading global aviation consultancy, has already warned Modi that the former ‘jewel on the crown’ was staring at staggering losses up to Rs 130 billion in the next two years, and failure to divest its stake could see the airline finally falling flat on its face.

The government, even otherwise, cannot afford to delay the transaction for many reasons like mounting losses, a growing debt burden, a drop in market share and a tougher competition from rivals, not to mention the resultant brain drain with ambitious commanders, engineers and managers moving to other money-spinning airlines in the world’s fastest-growing aviation market that is India.

Daunting conditions

True, Air India has been making operating profits for the past three years, and boasts a fleet of 130 Boeing and Airbus aircraft and 2,800 international prime-time landing slots per week in 39 destinations (including Dubai, Sharjah and Abu Dhabi as well as New York, London, Paris and Tokyo) and 4,000 domestic slots in 54 airports.

But daunting conditions like asking the bid winner to take on two-thirds of the debt and liabilities totaling an astounding Rs 330 billion, and give a guarantee that none of its 11,000-odd permanent staffers protected by 12 powerful unions will be sacked for one year were enough to beat back the interested buyers like Singapore Air, Qatar Airways, Tata Group, IndiGo and Jet Airways.

Even as the government is getting ready once again to successfully privatize the airline before the 2019 polls, chances are opposition parties as also the ruling Bhartiya Janata Party’s ideological parent, the Rashtriya Swayamsewak Sangh (RSS) and its economic think tank, Swadeshi Jagran Manch (SJM) may throw a spanner in Modi’s works.

Global leader

While the RSS is dead set against Air India being sold to a foreign buyer, the SJM has come out with its own measures to revive the airline which was once flying high as a global leader but whose market share has now fallen to just 13 per cent compared to 35 per cent only a decade ago with salaries of staffers delayed for the past three months.

Whether the government will eventually decide on a complete exit by selling its entire 100 percent stake in the belly-up airline or come out with other softer terms for sale is anybody’s guess but till then Air India will continue to operate on a wing and a prayer.

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