The million-dollar question: Is Air India saleable in its present avatar?

The ifs and buts around its sale are growing day by day

A few days before the submission of initial expressions of interest (EoIs) to buy national carrier Air India came in, many rumours floated in the media. Besides the Tatas and a bid by a set of employees, unconfirmed newspaper reports claimed that the carrier was being “eyed” by SpiceJet promoter Ajay Singh.

Then on December 20, bids were submitted. Nobody barring a handful of people could have told you who actually submitted EoIs but more rumours floated. A “surprise” bid had been put in by Pawan Ruia, ac­c­ording to some reports. Sin­ce Singh was mum and nobody in SpiceJet had been privy to any EoI preparations and plans, the rumour changed to Singh having bid in his personal capacity, backed by a set of mysterious investors. No confirmation of any of this was available.

A few months later, some actors have fallen off the map and new ones have appeared. Ruia and the employees’ bids have apparently fallen by the wayside but the rumour mills refined the “Singh-led consortium” bid to include IndiGo founder Rahul Bhatia’s estranged cousin Ankur Bhatia (who runs the Bird group) and the Ras-Al-Khaimah Investment Authority, which denied the report within days. Bhatia and Singh have neither denied nor confirmed.

But a growing body of sceptics argues that the bogey of a second bid has been floated by those involved with the sale process, and Singh proved the ideal “candidate” since IndiGo clearly indicated that it had no intention of bidding. Also, Sin­gh’s supposed proximity to the present government is another factor for choosing him. 

A minimum of two bidders is important for process and perception. A former aviation secretary said the Central Vigil­ance Commission guidelines for competitive bidding require the government to have at least two bidders or else they would have to re-tender. “Having at least two bidders is necessary if there is to be any kind of price discovery. Otherwise if the carrier is just handed over to the Tatas at whatever price the latter offers, this would allow the sale to be open to many uncomfortable questions in the future and would be politically unpalatable. In such sales, perceptions can make or break,” he added.

He maintained that this entire “second bidder” story is a fabrication and that there is only a single buyer — the Tatas — which, too, is being “pressured” to buy the airline.

Regardless of whether Sin­gh has bid or not, almost everyone argues that the winner — if the deal goes through at all — is a foregone conclusion and that the government has no intention of handing the airline to anyone except the Tatas. The timing is such that SpiceJet like all other airlines is under huge financial pressure. Recovery in the sector remains uncertain and so is the question of how the market will change structurally post-Covid-19. “I don’t see the government willing to hand the national carrier over to bidders who are already in rocky boats,” said a former Air India CMD. Since selling a nat­ional asset can be questioned by several wings of any future government and the sale exam­ined with a microscope, he said the current regime “cannot be too careful” in this regard.

This brings us to the million-dollar question: Is Air India saleable in its present avatar? Former airline CMDs and finance chiefs argue that the government is trying to sell the airline at the “worst mom­ent possible” and when the carrier is at its weakest. A former secretary describes the timing as “hare-brained”. They argue that compared to 2001 — the last serious attempt to sell the airline — the airline is in a far more vulnerable position. At the time, the airline had virtually a monopoly on many routes, the merger between Air India and Indian Airlines had not happened and there were few players in the market. 

Compare this with today’s position. After 2004-05 and the advent of the low-fare revolut­ion in India, the full-service airlines lost their previous mon­opoly positions on domestic routes. Liberal grants of bilateral seats during the two terms of the United Progressive Allia­nce weakened the airline’s hold on international routes. More­over, due to the pandemic, a large part of the fleet has been grounded and getting these aircraft back in working order will require funds —at least $ 2-3 million per aircraft, according to a senior finance head. 

“To bring the airline to the level of what would qualify as a Tata brand or standing req­uires mammoth investment,” he pointed out. A lot of the fleet is ageing or is certainly far older than competitors — whether Vistara, AirAsia India or even IndiGo. Most of the fleet of Air India Express goes back to 2009 whereas most of the Dreamliners came in 2014. The average age of aircraft is between seven and 10 years and these too would need to be replaced with newer aircraft.

“A massive rescheduling and route restructuring would be required to ensure that what is on offer by the new Tata-led entity can compete on a level playing field with rivals and to ensure that the companies owned by the same group don’t compete needlessly,” said a former commercial director of Air India.

A former airline finance head also argued that it is the best time for the airline to renegotiate its lease rentals since it is paying 25-30 per cent above market rates for sale and lease back of planes.

A section of the employees also feel that the government could have explored the British Airways (BA) mode of privatisation (done in 1987-88) and that this may still have to be the “eventual, fallback mode” if the Tatas don’t take the bait. This group argues that the government could have offloaded its shares to certain institutional investors who in turn would ch­a­nge the management and the functioning of the airline and once the airline’s performance picked up, the shares cou­ld have been offered to the public and employees at a premium.

But the BJP-led government has been attempting to sell the airline since it came to power and has elected to stick its neck out at this precarious time, tur­ning the sale of the carrier into some kind of nat­ional prestige issue. Success is far from guaranteed while controversy is.