Will The Modi Government Crawl To Sell Off Air India?

Nobody seems to want Air India (AI) — no domestic company anyway. And now it is reported that the government may change the terms and conditions of sale of the debt-laden “national carrier” if nobody continues to want it. What could this mean?

The deadline for submitting expressions of interest — to buy 76% equity stake in AI, along with 100% stake in AI’s subsidiary Air India Express Limited and the 50% holding in joint venture Air India SATS Airport Services — is 14 May. 

The BJP-led NDA government had announced the sale on 28 March — after the previous government systematically ran it to the ground over years, mainly by buying excessive aircrafts at colossal loans, merging AI with the domestic Indian Airlines (both of which were market leaders in their own right) and giving away lucrative routes to private airlines.

The eligibility criteria for the interested bidders is a minimum net worth of Rs 5,000 crore and net profit for three preceding years. Indian companies can bid either solo or form a consortium among themselves or with foreign companies, though the majority stake must be held by an Indian firm. 

IndiGo, the one Indian company that was likely to be eligible to bid solo and had earlier expressed interest in buying AI, changed its mind, saying it was only interested in the international operations and did not have the capability to turn around all of AI’s airline operations. 

After that, Jet Airways too declared it would not participate in the bid, citing the high debt burden and other “unfavourable” bid conditions. Jet was said to have been in talks with one of its alliance partners Air France-KLM and others to form a consortium and put up a proposal, since it was not eligible to bid solo.

Meanwhile, at least four foreign airlines seem to be interested in buying AI — Etihad Airways, Lufthansa, British Airways, and Singapore Airlines — and are scouting for partners.

In fact, it is reported that Etihad, a government-owned company of the UAE, is even looking at tying up with the Anil Ambani-owned Reliance group (Anil Dhirubhai Ambani Group), although it is said that an alliance seems unlikely given the Anil Ambani group’s “precarious financial conditions”. 

No other Indian company has come forward as yet.

The transaction advisor to the Modi government for AI’s disinvestment is Ernst & Young (EY), and it is reported that if investor interest remains weak — any private company meeting the eligibility criteria, and not just airlines, can bid — then EY will advise the government on changing the terms and conditions of the sale.

So what are these conditions that are, apparently, keeping Indian private players from bidding for Air India?

After all, AI continues to hold highly lucrative slots at prime airports and traffic rights internationally, with a market share of around 17% in the overseas services from India, the highest among all Indian carriers. It has a fleet of 115 aircrafts and more than 6,200 slots for domestic and international flights.

The primary deterring factor is obviously AI’s huge debt burden — even though the Modi government has already sweetened the deal by vowing that 50% of the debt will remain with the central government.

AI has a total debt of more than Rs 52,000 crore and has been suffering net losses — although it has been making rising operational profits for the past three years and has never defaulted in its loan repayment. 

Of this, the government will bear 50% — by hiving off non-core real estate assets and other business, not integral to the core airline business, into a Special Purpose Vehicle (SPV) to be owned by the Government of India. These other entities to be transferred to the SPV are Air India Engineering Services, Air India Air Transport Services, Airline Allied Services, and Hotel Corporation of India.

The private buyer would be left with a debt burden of around Rs 24,600 crore — mainly on account of the excessive aircrafts that were bought unnecessarily under civil aviation minister Praful Patel during the UPA-I regime — along with current liabilities of more than Rs 8,800 crore. This means a total burden of debt and liabilities of more than 33,300 crore will remain with the new owners.

Given that no buyer has come forward yet, and may not either by the deadline of 14 May, does that mean the government will be forced to take on even more debt? Could the talk of a “change in terms of sale” mean that?

Give the desperation and the rush the Modi government seems to be in to sell of AI, it would not be surprising if private investors pushed the government to bear even 100%, or close, of the debt burden. 

As it is, the government is already planning to sell off its remaining share in AI to LIC and others, apparently to appease private investors who do not want any government ownership in the airline at all, citing potential interference by the government. 

Could Modi’s appeasement of private investors at any cost — which is what dictates nearly all of this government’s policy decisions — go so far to get the public exchequer to bear the entire debt of AI while selling it off to private companies to mint profits? After all, Modi has already written off ‘bad’ loans of corporates worth Rs 2.72 lakh crore. 

If at all this does happen in the future, then why sell AI at all? Why not retain the airline in the public sector and turn it around then? After all, the airline has been making operational profits.

Another condition that the potential investors seem wary of is that they would be required to compulsorily list the airline in the stock exchange after three years, even though it would likely take longer for the company to be turned around and become profitable again.

Another deterring factor seems to be the clauses to protect AI’s employees, which Indian private players cite as “onerous”, as this report says. 

There is lock-in period of one year, for which time the new owners cannot fire the existing employees, who are around 27,000 in number. 

After one year, the new owners will be free to offer ‘voluntary retirement’ to the employees. However, as government sources told Business Standard (BS) in the report hyperlinked above, the new owners would not need to offer voluntary retirement to a “high number” of employees, “since the average age of Air India employees is just below 50 and a large proportion are in the ages of 54-55 so they need to be paid for only 3-4 years since the retirement age is 58.”

“It will not be a massive expense for the new owner to reduce manpower,” a government source was quoted telling BS. 

Once a public-sector company is privatised, the first to go are the staff, because the profit-seeking private company obviously wants to cut costs by reducing the wage bill. 

While the government is likely to specify the conditions regarding protection of employees after the deal in the request for proposals, as the BS report adds, “no special dispensations of any kind were being considered for Air India employees.” 

In the world of private profit, people are not resources but merely an expense — and expendable.

BJP patriarch LK Advani had famously said of the Indian media during the Emergency that they crawled when they were only asked to bend — let’s see how far the Modi-led BJP government does the same before the corporates.