The government is optimistic on the sale of Air India despite prospective Indian airline bidders apparently withdrawing one after the other from the race.
It appears that at least four international carriers — British Airways, Lufthansa, Etihad and Singapore Airlines (SIA) — are interested in the stake sale. All these foreign carriers are scouting for an Indian partner that meets the net worth criterion since the majority holding needs to be with an Indian player.
Emirates has not yet evinced any interest, according to sources. As the sources see it, the “constraint, as of now, is the Indian partner, not of a foreign investor”. How many players eventually bid will depend more on the appetite of Indian businesses to come in than the problem of finding a foreign airline partner. As of now, the date for submitting expressions of interest remains May 14.
In a further twist to the tale, sources said Etihad was looking at a partner other than Jet Airways to jointly bid for the carrier. Etihad, according to these sources, is both looking at withdrawing its existing 24 per cent stake from Jet and is also scouting for a new partner — that need not be an airline — to see whether it can bid jointly for Air India.
They claim Etihad is in touch with Reliance ADAG, Tatas and SpiceJet. Of the Indian players, only SpiceJet is being looked at as a serious possibility as the majority partner. IndiGo has withdrawn from the race in its present form and Jet, too, has said that it would not be bidding on current terms.
Contrary to recent news reports, these sources said that the Tatas not being keen was “incorrect” and that there was a very real possibility of the Tatas coming forward. What was less clear was whether it would be through Vistara and SIA or some other partner. A source close to the process said that currently all options are up in the air and everyone is scouting for the right partner.
Indian players are citing the high debt burden and clauses to protect employees as onerous, but official sources argue that this is not true. The exact debt had been worked out keeping the company’s assets in mind. The debt is around Rs 246 billion and is equal to the assets of the company and that was the basis on which the debt left on the books was ascertained.
As of now, Air India’s aircraft are valued at Rs 210 billion, in addition there is the 100 per cent investment of Air India Express and 50 per cent of AI-SATS — the latter two being estimated at anywhere between Rs 100 billion and Rs 120 billion. The current liability, Rs 88.16 billion, sources explained, is “normal” in the airline business.
As far as the employees clause goes, there is only a one-year lock-in period, post which the government has adopted the same approach as it has for every other disinvestment. After the first year, the new owner is free to offer voluntary retirement to employees. This, they argue, will not amount to as high a number 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,” said another source, adding that the government was following the normal procedure for dealing with employees of a public sector company that it is looking to disinvest. No special dispensations of any kind were being considered for Air India employees.
A sale is the only way forward, as the daily outgo for the government is currently Rs 100-150 million on the airline, a massive drain on its resources. Faced with that, what kind of pricing would make the government happy? E&Y — the consultant for the exercise — is to come up with a number on valuation. But this is not expected anytime soon as this is the second stage and the process may take 4-5 months.