Resume AI sale process: Govt must ease some onerous conditions for bidders

It was clear to everybody that some of the conditions mentioned in the PIM were a big put-off for any serious bidders

The Air India disinvestment fiasco is yet another example of how the government is out of touch with ground realities. That the process would be a failure was a foregone conclusion; it’s only the government officials who were in a state of denial. Even a day before the end of the deadline for the expression of interest from bidders, officials told the world at large that offers will “pour in” at the last hour. That bravado is still understandable, as no seller would like to be seen as throwing in the towel before the process was over, but the blame game that has followed is baffling. Government officials have faulted everybody — the transaction advisors for their ineffective communication, and industry in general for a lack of risk appetite. But the only thing they have refused to do so far is to look at the mirror. It was clear to everybody that some of the conditions mentioned in the preliminary information memorandum (PIM) were a big put-off for any serious bidder.

Consider the guidelines for dealing with the airline’s 11,214 permanent employees. The PIM said workers could be given voluntary retirement after a year of the completion of the sale; what no one cared to clarify was the legal requirement of getting the government’s permission before any such exercise could be undertaken. This was important because there was no guarantee that the government of the day would give such permission. Equally onerous was the condition that the airline had to run at arm’s length from the other businesses of the buyer. Also, with the government having a board presence by virtue of its 24 per cent stake in AI, a potential investor could not have had a free hand to deal with the airline. Unless, of course, he is willing to be a bakra, or sacrificial goat, as evocatively described by former aviation minister A Gajapathi Raju. One big put-off for potential buyers was the amount of debt that they will have to subsume — almost Rs 334 billion. That is not good news for prospective bidders for an airline that has seen its share of domestic traffic slide to 12.3 per cent and global traffic to 16.9 per cent.

It would, however, be unwise to scrap the AI disinvestment process because the cost to the taxpayer will be massive with continued government ownership. The government must quickly address some of the structural issues and resume the disinvestment process. For example, it could decide to sell its entire stake in AI, and on much simpler terms, because nobody would want a government nominee on the board who could be under political compulsion to act against the airline’s commercial interests. The other option could be to go in for a reverse auction: Write off AI’s entire debt and invite financial bids based on the potential that interested parties see in the airline. Deeper engagement is also required with potential bidders to hammer out ways to make the airline a more attractive acquisition target. AI has been a textbook case of yet another state-owned firm in India running aground after the opening up of the economy and the failure of the state to retreat from non-strategic and competitive sectors. Any further delay in the sale process will mean shifting the burden further on to taxpayers.