Sell Air India or shelve it, fast

There were serious doubts about the success of the disinvestment plans for Air India right from the time the government announced the programme and made its details public. It was either greedy or overestimated the attractiveness of the national carrier and attached a lot of conditions to the offer, which ultimately put off potential suitors. No bid was received even though the deadline was extended, belying the government’s confidence that there would certainly be some bids on the last day. There is even a view that the lack of interest from expected bidders might be a bargaining tactic to get the airline cheap. The agencies which were involved in the process and advised the government are being blamed, too. The timing of the offer, when oil prices are high, has been questioned. But none of these excuses really help to explain the failure.

The biggest disincentives for potential investors were probably the government’s plan to keep 24% of the equity with itself, the guidelines on handling the bloated staff after disinvestment and the airline’s debt burden. The government could keep its nominee on the board of the airline if it had a 24% stake. The buyer would then be constrained in taking the best commercial decisions, because the government could oppose or block them, sometimes even on political considerations. The stipulations also did not give the buyer a free hand in dealing with the workforce of over 11,000. It was not clear whether a voluntary retirement offer could be effected after one year. The disinvestment plan has always been opposed by the AI staff and so there was uncertainty on the matter. The airline is reeling under a Rs 33,000 crore debt burden. The bidder had to take on the debt. It would be difficult to manage this debt and turn the airline around and make it viable. Even a bidder with deep pockets would find the task very challenging. Air India’s share in domestic and international traffic has fallen low. Even the strengths that it has, like its fleet, infrastructure and landing rights, cannot override these negatives.

The government should review these conditions and relax them to elicit interest among bidders. It has hinted at this. It should make a careful study of the reasons for the failure of the programme and ensure that there is a positive response the next time. It should also desist from giving any more financial support to the airline. If disinvestment does not happen, it should be proceeded against under the bankruptcy laws. No more tax-payers’ money, no more time should be wasted on the airline.