Air India must run govt-free

Much has been written about Independent India’s biggest strategic disinvestment, the sale of Air India, which many believe is only possible under the current regime at the Centre, where decision making is swift and centralised.

The move to let go of Air India is laudable, but even a whole lot of good intentions cannot solve a jigsaw puzzle where crucial pieces are either missing or incomplete. AI disinvestment is a big deal, a project which has been attempted at least once earlier. But political brinkmanship stymied the sale then, this should not happen again. Air India should be offloaded to a capable private party with experience and guts to run India’s ‘national carrier’.

Sticking to deadlines is most important in this endeavour. Already, the Express of Interest (EoI) document is delayed; a notification announcing the disinvestment was ready for publication in major newspapers this weekend, but has been put off. This could make sticking to the December 2018 deadline for completing Air India sale rather difficult.

The sale process needs to be unambiguous, its contours well defined and time bound. Imponderables should be sorted out beforehand.

First up, what is the debt on Air India’s books? Debt is the biggest elephant in the room and without clarity on this number, the sale may end before it even begins. Is the debt close to Rs 50,000 crore, as repeated several times in Parliament in replies by the mandarins of the ministry of civil aviation, or is it touching Rs 70,000 crore? Whether the latter figure is a result of treating liabilities in one accounting terminology or another, the fact is that a 40 per cent jump in liabilities just before the disinvestment process is set to begin, does punch a hole in any potential bidder’s interest. The good thing is that the government has already spoken of spinning off “some” of the debt into an SPV and many believe at least about Rs 30,000 crore working capital debt will be removed from the airline.

The second imponderable is employee numbers. Various estimates have put the total number of employees at about 29,000 including those on contract. With a socialist mindset dictating that there be no retrenchment post disinvestment, what is the government planning do about the flab? Will it provide airline employees the option of joining the public sector? If so, this will create its own set of problems but even then, there should be clarity on employee numbers and their future. Will the government also or only offer a VRS package to reduce the numbers and weed out the chaff? No private sector bidder would like a bloated airline, however good the assets may be.

One bidder has already said if all employees have to be taken on, the bid will be lower.

There has also been much to-and-fro about whether foreign airlines and foreign investors are permitted to bid for Air India, before the government opened up the airline to 49 per cent foreign investment. This implicitly means even if a foreign airline or investor comes forward, it will have to partner an Indian entity to assume majority 51 per cent control in Air India. Though the FDI cap is in line with the sectoral cap and cannot be faulted, this does put a sort of spanner in the works.

Apart from its decision to hive off some debt into an SPV, another smart move the government has already made is in indicating that the airline will be broken up before sale into four distinct entities. This will permit bidders to cherry pick the part they want – not all may want the airline operations – and get it with minimal liabilities. It also allows government the option to retain some parts of the airline, not offer them for sale. There is a persistent view that Alliance Air, for example, which offers unmatched regional connectivity, should not be sold off since the government is anyway emphasizing enhanced connectivity of the hinterland through special schemes like UDAN. Again, for AISATS (ground handling JV) and Air India Express there have been similar views – why offload these profitable ventures if the intention is to only let go of the loss making parts?

Now let us come to the part where the government wants to hang on to AI despite assertions aplenty to the contrary. There are enough indications that the government may retain a minority control, while allowing the bidder assume management control. The logic being given out for this move: private bidder is expected to improve the workings of AI and the government can cash out later, at improved valuations. Also, this will help the new owner negotiate the tricky transitory phase. But this is warped logic, at best. If government representation on the board continues in any form, there is bound to be political interference and this will hamper the working of the airline under the new owner. The government should exit the airline business completely, it has no business being in business. Period.

The author is a senior journalist. Views are personal