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Analysis: Selling Air India's dying hotel business will be a tough task

The divestment of Air India's hotels has been jinxed from the very first time

Sai Manish  |  New Delhi 

Hotel Centaur
Hotel Centaur Photo: Official Website

Hotel Centaur in Delhi now waiting to be demolished to make way for aircraft parking bays for an expanded international airport is in many ways a simulacrum of Air India’s own fortunes. The last time this iconic hotel, one of the two run by Air India’s subsidiary (HCI), ever made a profit was in 2006-07. This was the time when the infamous merger of Indian Airlines and Air India, now a matter of Central Bureau of investigation (CBI) inquisition was also executed. The hotel along with Centaur Lake View in Srinagar have been on the chopping block since 2002 but have yet to find any buyers. 

Arun Shourie, then disinvestment minister in the Vajpayee government, had kickstarted the process of selling off these properties. JP Morgan was appointed as an advisor on the disinvestment process. In October 2003, advertisements were calling for bids for the Delhi and Srinagar Hotels. According to company’s financials of the time, 39 bids were shortlisted by the government out of which 20 submitted the earnest money of Rs 1 crore required to be considered a serious bidder. The interested parties were taken for inspection of the properties. Air India’s annual report notes, “Since there were delays in filing the financial bids, 6 parties withdrew and their earnest money has been refunded. Now 14 parties are left in the fray. A view on calling for the financial bids will be taken by the government soon.” 

With the Vajpayee government demitting office in 2004, the decision which was to be taken ‘soon’ never came. In fact, the ministry of civil aviation under Praful Patel, began renovating Centaur Delhi. The planned renovation of 127 rooms was estimated to have been carried out at a cost of Rs 11 crore. The renovation was completed in 2008. Centaur Delhi’s occupancy rate plummeted to 46% from 73% while the renovation of almost a third of its rooms was in progress. In 2009-10, occupancy in the hotel fell to 33%. While occupancy recovered in the following years, it failed to match the glory days of the hotel. Revenues dwindled and losses swelled. By 2014-15, Centaur Delhi posted an annual loss was almost Rs 22 crore.  

A similar but less ominous fate was looming over Centaur Lake View in Srinagar. While Shourie had proposed selling the Srinagar property too, the then Mufti Mohammad Sayeed-led government in expressed its willingness to take over the property. According to the HCI documents “core issues were identified & assets of the Centaur Lake View Srinagar were valued by an asset valuer who submitted the report to the government.” However, no decision on the issue was taken by either the state or the central government. Meanwhile, there were simmering differences between the company and the Kashmir government over the hotel. The J&K government demanded Rs 43.27 crore from the hotel as part of its dues according to a cost-sharing agreement that was signed in 1982. meanwhile filed a counterclaim demanding Rs 47 crore from the state government as part of its dues according to the agreement. The company noted in its regulatory filings, “Since there are divergent views the matter has been referred to the Ministry of Civil Aviation for settlement.” 

With the involvement of J&K government in running the hotel not going anywhere, a decision was taken in 2008 to run the hotel on a management contract basis. Tourism Finance Corporation of India was chosen as the management consultant for selecting private parties for running the hotel. Three bids were received out of which two were found to be eligible. A task force was formed to which the details of the two bidders were forwarded. The task force felt that the financial terms for the contract needed to be reviewed. After the financial bids were reviewed, only one party submitted the financial bid and was chosen for the job of running the hotel in November 2011. The company was BD & P Hotels Limited; a subsidiary of DB Realty owned by 2G scam accused Shahid Balwa.  However, employee unions of the hotel opposed to the takeover by a private firm moved the J&K High Court which inturn granted a stay order. had to invoke the ‘force majeure’ clause in its contract with Balwa’s firm and the agreement was terminated. Due to the termination, had to pay BD & P Hotels an undisclosed sum as minimum guarantee money in addition to refunding the security deposit paid by it. 

While the contract was cancelled, the J&K government again expressed its interest in running the hotel. This time it was Omar Abdullah heading the state government. Air India, left with little option, accepted the Omar Abdullah government’s offer. Centaur Lake View Srinagar along with its employees was transferred to the J&K government. The employee's unions, which were part of the discussions, meanwhile were unwilling to work under the J&K state government. With opposition from the unions against being transferred to the state government growing, through HCI continued to run the hotel. The UPA government meanwhile rekindled its interest in running the hotel rather than transferring it a third party. In 2011-12 an amount of Rs 3 crore was sanctioned to Centaur Lake View Srinagar “to upgrade the unit & bring it at par with other star hotels in the state.” In 2012-13, another Rs 5 crore was sanctioned for the hotel’s renovation. Among other things the money was used to renovate the kitchen and water proofing the roof top of the hotel. The hotel meanwhile continued to bleed money. Its accumulated losses from 2007 to 2015 stood at Rs 42 crore. 

The divestment of Air India’s hotels has been jinxed from the very first time successfully hived off three of its properties to private players in 2002-03. These included the Centaur Hotel near the Mumbai Airport, Centaur Juhu in Mumbai and the Centaur Hokke hotel in Rajgir. The Centaur Mumbai airport deal was considered controversial and landed up in courts. The Sahara group which re-purchased the hotel from Batra Hospitality Private Limited, a few months after it was sold to Batra by Air India, claimed an amount of Rs 2.35 crore from The airline after a protracted legal battle finally won the case in 2015 when the Mumbai High Court rejected Sahara’s claims and directed it to pay Rs 1.88 crore to The Centaur Juhu deal also went into arbitration and was settled sometime in 2013. 

While Air India’s hotel divestment and management process over time paint a gloomy picture, things were looking up for its subsidiary that operationalised its lounge at Terminal 3 (T3) of Delhi’s Indira Gandhi International Airport in 2013. During the first year of its operation Air India’s T3 lounge showed a modest profit of Rs 1.75 crore. In 2014-15, its profits increased to Rs 2.56 crore. With Delhi Centaur on the threshold of demolition, will be left with only the Centaur Lake View in Srinagar. It remains unclear how viable will it be for an embattled to operate a lounge, a loss-making hotel and two catering businesses which have withered post-merger of Indian Airlines and  

As the Modi cabinet deliberates on ways in which it can cut its stake in Air India, a good starting point could be thinking why a government which promises less government and more governance needs to be in the chai-paani business.”

A Timeline

February 2000 : Department of Disinvestment seeks cabinet approval to dis-invest owned by Air India

May 2000 : Cabinet Committee on Disinvestment takes note of the proposal 

June 2000 : JP Morgan appointed by to oversee sale of hotels to private players 

October 2000 : Advertisements calling for sale of Centaur Juhu, Centaur Mumbai Airport, Centaur Delhi Airport, Centaur Lake View Srinagar Centaur Hokke Rajgir and Chef Air Catering services put out

September 2001: Process of disinvestment taken over by Ministry of Disinvestment from Ministry of Civil Aviation 

November 2001: Bids invited for sale of all hotels & catering services of Air India 

December 2001: Bids of Tulip Hospitality for Centaur Juhu accepted, Inpac Travels bid for Centaur Rajgir accepted and AK Batra's bid for Centaur Mumbai Airport accepted 

January 2002: Rebidding for Centaur Delhi & Centaur Mumbai Airport held. Batra submits a higher bid for Centaur Mumbai Airport. Centaur Delhi receives no bids 

March 2002: Hotel properties in Juhu, Mumbai Airport and Rajgir transferred to respective buyers 

June 2002: government expresses interest in running the Centaur Lake View Srinagar Hotel. No decision taken so keeps running it 

April 2008: Tourism Finance Corporation of India chosen as consultant to select private parties to run Centaur Lake View Srinagar

November 2011: 2G scam accused Shahid Balwa's selected for managing the Srinagar property 

February 2012: High Court stays takeover of Centaur Lake View Hotel Srinagar by Balwa's company after employees approach court 

March 2012: Omar Abdullah government expresses interest in managing the hotel. accepts Abdullah's offer and transfers property to state government on as-is-when-is basis 

February 2017: Delhi International Airport Pvt Ltd (DIAL) says Centaur Delhi would have to be demolished by 2019 for expansion works at Delhi's Indira Gandhi International Airport

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