The Centre’s decision to retain a significant minority stake in debt-laden Air India after its privatisation is seen as the primary reason behind the muted response to the proposed disinvestment in the national carrier.
“The government decision to retain 24% post-divestment was a non-starter,” said an aviation industry veteran, aware of the discussions around the sale of government equity in the loss-making airline. A government official close to the bidding process also told ET that there was no point in keeping a residual stake.
“It (the government) should have gone ahead with the initial proposal, which was also recommended by Niti Aayog, to fully divest the government holding in the firm (Air India),” the official said on the condition of anonymity.
Niti Aayog, the government’s policy think tank, had recommended that the government completely exit Air India. However, the alternate mechanism, a panel of ministers set up to supervise the carrier’s sale, ruled in favour of initially retaining a 24% in the airline and exiting completely at a later stage —may be after three years.
Another industry insider said the government’s residual stake, even as a minority shareholder, did not draw buyers to the carrier. “The government holding even a 1% stake is not a comfortable situation for any investor buying an airline,” he said.
New Delhi did not receive any interest for its proposal to sell a 76% stake in Air India by Thursday — the last day for submitting interests. On Friday, the Prime Minister’s Office was briefed on the issue and the government has already started redrawing the proposal. The asset monetisation of the carrier will go on as usual despite the bidding process not going as expected, a senior official said. The government had also considered other possibilities, such as management lease and retail listing: both were seen as unfeasible for Air India, he said.
The Tata Group, IndiGo, Jet AirwaysNSE 2.07 % and Spice Jet were among the airlines that held discussions with the government on Air India. The official told ET that the Tata Group and Jet highlighted the stressed operations at its airline entities, while IndiGoNSE 1.46 % had not agreed to specific conditions. The alternate mechanism, headed by the finance minister, is expected to consider a revised proposal on the carrier’s sale next week. The official said if jet fuel had been bought under the ambit of the goods and services tax (GST), it would have led to greater bidding interest.
‘NOT A FAILURE’
“We don’t see it as a failure on the government’s part,” said a senior finance ministry official, who did not want to be identified. He further added that the government will go back to the drawing board to look at all options. When asked if that would also mean piecemeal sale of assets, he said: “Why not? There is a limited universe of bidders for Air India: Either we have to expand that, or align with market expectations.”
In the current proposal, the government is offering 76% in Air India, which includes 100% in low-cost international subsidiary Air India Express and 50% in a ground handling company AISATS. Another senior official, aware of the development, said that the government was aware of the expectations of the likely bidders. “It is not that we were not aware of the demand. There are a few demands that will be looked into,” the official said, without specifying what the expectations were.
After the setback, New Delhi is also of the view that potential investors may not have bid to create pressure on the government to cede to their demands. Another source said the government was totally aware of the demands. “More than one potential investor has been in touch with the government with a list of their concerns,” said the executive, aware of the development.
Another government official added that a few concerns were also related to synergies involving the current airline businesses of the bidders. The government, apparently, did not clarify these concerns. “These clarifications would have come at a later stage during the signing of the shareholders’ agreement,” said a source.
Concerns were also raised on too much of debt and liabilities at the entity being divested and asset base of the carrier: All non-aeronautical assets of Air India have already been transferred to a new company named Air India Assets Ltd. In February this year, the government told Parliament that Air India has been able to mop up Rs 445 crore from monetisation of its land assets in the past six years.
PRIME LAND ASSETS IN LONDON, TOKYO
The balance sheet of Air India also contains unusual assets that include collected artwork, sculptures, and paintings, apart from land plots in major cities in India, such as New Delhi, Mumbai and Chennai, and in London and Tokyo.
Other assets on the books include several prime slots for takeoff and landing at major international airports in several countries. The loss-making airline has been in talks with potential investors, including lenders such as the State Bank of India, to divest its non-core assets to pare its crushing debt load.
A top aviation ministry official, on the condition of anonymity, said the government tried to clarify all the doubts that were raised during the initial stages of the bidding process. “May be, we could not address the concerns that the probable investors had. We will now try to ensure that there is clarity on issues,” said the ministry official.
While the process of redrawing the offer has started, it remains to be seen whether the government would like to go ahead with the privatisation in the last year of its term. “The government would not shy away from reforms just because it is the election year, but the final decision will be taken by the ministers’ group,” said a government official.
