Getting rid of the albatross

RSS chief Mohan Bhagwat recently said: “Air India should be handed over to anyone who can run it efficiently. The new operator must be an Indian player.” The good thing here is that Bhagwat, unlike many others, is at least open to the idea of the government selling Air India. The bad thing is that under the current terms of sale none of the Indian airline companies will be interested in buying Air India.

Under the current terms, the government wants to sell 76 per cent of Air India, 100 per cent of Air India Express, the low-cost arm of Air India, and 50 per cent of SATS, a gateway solution and food services provider. Basically, the government wants to sell Air India as a single entity, which no Indian airline company seems to be interested in buying. IndiGo, SpiceJet and Jet Airways have already expressed their inability.

Let’s start with IndiGo. IndiGo has a 39.7 per cent share in India’s domestic airline business. Given that, it is but logical that the airline is not interested in the domestic business of Air India. Air India has a 13.2 per cent market share.

In fact, Aditya Ghosh, the president of IndiGo, recently said: “From day one, IndiGo has expressed its interest primarily in the acquisition of Air India’s international operations and Air India Express. However, that option is not available under the government’s current divestiture plans for Air India.”

This makes immense sense for an airline which dominates the domestic skies and is looking to expand internationally. Air India has 2,543 international landing slots negotiated with many countries, over the years. Air India has 17 per cent market share in international flights originating from India and coming to India.

Given that it is a low-cost airline, IndiGo would be specifically interested in buying Air India Express, which primarily services the Indian diaspora in the Middle East.

Ghosh further said: “Also, as we have communicated before, we do not believe that we have the capability to take on the task of acquiring and successfully turning around all of Air India’s airline operations.” What this tells us is that Ghosh is not willing to take on the risk of buying Air India as a whole and taking on 18,000 employees affiliated to strong employee unions, and who have never worked in the private sector, though he is interested in buying a part of it.

Along similar lines, Jet Airways, which had a 16.8 per cent share in the domestic business, is also not interested in buying Air India. Jet Airways’ deputy chief executive officer told the PTI: “Considering the terms of the offer in the information memorandum and based on our review, we are not participating in the process.”

Jet Airways, is not in a strong position financially to buy Air India. Nevertheless, like IndiGo, Jet Airways may also be interested in the international business of Air India. Jet has an international presence and in 2016-2017, its revenues from international operations stood at Rs 12,396 crore, which was around 35 per cent more than its revenues from domestic operations.

Media reports suggest that the Tata Group is not interested in Air India either. Having owned the airline once upon a time, before it was nationalised, it has been speculated for long that the Tatas have always been interested in buying the airline for nostalgic reasons. But that hasn’t turned out to be the case given that the Tatas have investments in two airlines operating in India – AirAsia and Vistara.

AirAsia and Vistara together have 7.9 per cent share in the domestic Indian market. If the domestic business of Air India were to be sold separately, the Tatas might just be interested, given that Air India, despite its fall over the years, still has over 13 per cent market share.

The thing is we will never know whether the Indian airline companies are interested in buying Air India, unless the government goes ahead and offers different businesses of Air India, for sale, separately. Over and above this, the airline which buys Air India needs to take on two-thirds of its debt. As of March 31, 2017, the total debt of Air India was at Rs 48,447 crore. Two-thirds of this works out to Rs 32,298 crore or around $5 billion (assuming $1 = Rs 65). No Indian airline company is currently in a position to take on such a huge amount of debt. This debt can even bring down a profitable airline. Even international airlines will think twice before taking on such a huge amount of debt.

Another clause which will act as a spoiler is the fact that the government wants to continue to own 24 per cent of the airline. It even wants two of its nominees on the board. This means that it will be possible for the government to keep interfering in the operations of Air India, even after selling a major chunk of it.

Of course, this condition comes from the fact that no one wants to get accused of selling the airline cheap. Hence, in the future, if the airline does well, the government has the option of selling its 24 per cent stake. The trouble is with such conditions, it will be very difficult to find a buyer in the first place. And without a buyer, there is no future for Air India.

The writer is the author of the Easy Money trilogy. Views expressed are personal.