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Air India draws a blank: Insistence on govt control dooms privatisation

As the national carrier gets zero bids, industry says the govt's decision to hold 24% in the airline was a spoilsport

Arindam Majumder  |  New Delhi 

Air India
The future process now involves going back to the core group on disinvestment

In a blow to the government’s privatisation drive in aviation, no bidder showed up on the last day of submitting expression of interest to buy a controlling stake in Air India. With that, the disinvestment of the national carrier, which had kicked off last June following Cabinet approval, seemed to be grounded for now. The proposal will now go back to the group of ministers (GoM) overseeing the process for a possible review of norms. With the Lok Sabha elections scheduled for 2019, a fresh process may not be easy to roll out, people in the know said, while businesses blamed “faulty guidelines’’ for the flop show.

“No response has been received for the EoI floated for the strategic disinvestment of Air India. Further course of action will be decided appropriately,” the ministry said in a brief statement soon after the deadline for submitting bids got over Thursday evening.

Secretary Rajiv Nayan Choubey said the course of action would be decided by a finance minister-led GoM. “We were expecting a significant interest from the market. The future process now involves going back to the core group on disinvestment. Any changes in the terms of sale will be decided by the committee,” Choubey said.

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Industry sources indicated that the government’s decision to hold 24 per cent in the airline was a major reason for the absence of interest.

“First, there is a significant amount of debt that the new owner would take over. Turning around operations of the airline would need massive restructuring, which is not possible with the government staying in picture,” said an airline executive.


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India’s largest airline, IndiGo, while expressing an interest to buy the airline, had mentioned that it would not like to bid if the government remained in picture. “Our view is that a joint venture or a joint ownership with the government is at best a very difficult proposition and we would not go down that path. The government has owned and managed Air India for 50 years and is looking to divest of itself right now. One would even wonder if truly at the end of the day when the thinking is all done, whether the government itself would be interested in wanting a partnership," IndiGo co-founder Rakesh Gangwal had said.

This is not the first time that private players have expressed their inability to work with government ownership. Earlier, the government attempt at privatisation had failed to draw interest from bidders for helicopter company Pawan Hans. The government wanted to sell only 51 per cent stake along with management control in the helicopter service operator while the remaining 49 per cent was to be held by Oil and Natural Gas Corporation (ONGC).

Industry insiders pointed out that the bidders were reluctant to buy stake in a company where a government-owned entity like ONGC held a substantial stake.

“Most helicopter provide services in the oil and gas sector; hence ONGC will be a major customer. In such a scenario, who will want ONGC to hold 49 per cent stake in the company? This is a case of conflict of interest,” said an executive of a company which had expressed interest in Pawan Hans.

Similarly, Airport Authority of India (AAI) was forced to cancel the process of privatization of airport terminal operations in Ahmedabad and Jaipur after the bidding process received just one response. An executive of company, which was among the prospective bidders, put the onus on the government reluctance to go for full privatisation as the reason for tepid response.

“Private players want to play in large scale, the prospective bidders want to operate an entire airport. Then the prospect of profit becomes higher, only terminal operation doesn’t provide any opportunity,” said an executive. Big names among the prospective bidders included GMR, GVK, Tata Realty and Reliance Infrastructure. Among global bidders, there were Daa International and Flughafen de Zurich.

Industry experts said the failure of Air India sale process would imply the government’s inability to attract “We treat this as a significant failure. Next steps should include a comprehensive restructuring of Air India under a special administration which can be followed by 100 per cent divestment with less complex terms, “said Kapil Kaul, CEO (South Asia) of aviation consultancy firm CAPA.

Secretary Choubey, however, defended the government decision on keeping a 24 per cent residual stake. ‘’The government wanted to retain 24 per cent for the benefit of upside. We were retaining away a significant part of the debt which had to be serviced. Selling the residual stake would have helped us to service the debt. That has not happened, so we will take a call on how to proceed further,” Choubey said. The government will incorporate the lessons from the process in future decision-making, he said.

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First Published: Fri, June 01 2018. 02:23 IST
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