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Hardselling The Maharaja
There is neither much room nor time for the Modi government to eschew a new proposal with just 11 months more for Lok Sabha elections
Photo Credit : Reuters
Modi government's attempt to carry out one the largest and historic sell-off in post-independent India –and in an election year -- has turned out to be a disinvestment ‘’harakiri’’. Having hit a roadblock now, the sell-off plan has to go for an overhaul! There is neither much room nor time for the Modi government to eschew a new proposal with just 11 months more for Lok Sabha elections.
Exactly 70 years ago on June 8, 1948, Air India took a historic first international flight to London but last fortnight it made history of another sort --the second attempt to sell off AI has gone into a tailspin! Subsequently, when the Civil Aviation Secretary RN Chaubey declared that the AI disinvestment had failed to attract bidders it was with almost ''all lost'' undertone. "We will go now to Air India Specific Alternate Mechanism!" said heartbroken Chaubey. Now the North Block is likely to relook into a new strategy to attract bidders. Particularly so, as AI formed one of the mega-sale towards mopping up Rs 80,000 crore target for FY 2019 from strategic sales of PSUs and hence to meet the fiscal deficit target.
Formally, now after the failure of the Expression of Interest, a revised Preliminary Information Memorandum will be prepared and sent to evaluation committee and then to DIPAM (Department of Investment and Public Assets Management) and then to the Disinvestment Committee headed by the Cabinet Secretary and then to the five-member disinvestment panel headed by the Finance Minister.
There are only limited options for the government now. First is, hive off profit-making units and present a cleaner balance sheet. Second, revamp its EoI pre-requisites. Third, call off the sell-off! One of the main stumbling blocks for AI sell-off is the huge debt liability. Saddled with a debt to the tune of Rs 52,000 crore of which as much as Rs 33,000 crore will have to be borne by the new bidder. Add to this the three year mandatory ''no sale'' condition as well as a liability of around 12000 employees with a half a dozen union bodies comes as an added baggage to any prospective bidder. Besides this, political interference in its day to day working with intermittent CEOs has put fuel to fire. Besides this, the airline is an official carrier for VVIPS and government officials. Chartered flight services or even evacuation purposes incur heavy bill in the process. For instance, by January 2018, AI was saddled with a Rs 326 crore pending bills form the government. Since 2012 under the UPA government, there is a capital infusion of Rs 2000 crore annually goes towards meeting the airlines' expenses.
"But why is everybody just talking about the debt burden?" asks HarshVardhan, aviation expert and consultant told BW Businessworld. " AI still today has the ability to generate Rs 5 crore surplus if run efficiently....." he argues. AI today has just 13.8 per cent share in the domestic market and 17 per cent of the international traffic from India. The fact is government is just not serious! CEOs are appointed for an intermittent period and despite having an efficient workforce there is little will to turn it around, he says. "Unless the higher ups pick up the attitude to run the airline from 'tarmac-to-shopfloor" perspective the carrier will not take off, he adds. Indeed, airlines business is highly capital intensive and highly competitive, look at the fate of other airlines Kingfisher or Air Sahara or even Captain Gopinath's promoted no frills LCC Air Deccan, all lost steam and went aground.
On similar lines, Mark Martin of Martin Consultancy LLC, an international aviation consultancy considers AI as one of the best airlines in Asia and even said that UAE airline –Emirates, took 22 years to turn profitable AI took only 15 years -- before it slipped into losses. To add to this, prospective bidders see a potential threat from right winged political groups like SJM and the Sanghis. One this note, former AI executive director Jitendra Bhargava told BW Businessworld: "....But it is indeed a moot point. Is it necessary to sell off family silver? In last 25 years, there has been several permutations and combinations to turnaround the carrier but nothing has worked," he says. Attempts to hive off independent departments have also met with stiff resistance from half a dozen-odd union bodies in the airline. In fact, the spinning off of profit-making units has been objected to by Nitin Gadkari himself – whos member of the ministerial panel for disinvestment.
FM Arun Jaitley has said that the government was not selling off the national carrier but only transferring its management! In fact, NITI Ayog has suggested a 100 per cent sale of the carrier. But how? Lufthansa and British Airways were put up for privatisation but were later reverted back to government. They have successfully turned around. Colin Marshall turned around British Airways in 1983, which under similar predicament as AI. It cut off excess fat - excess cabin crew costs, shortlisting viable routes and invited the employees to invest as sweat equity --in the turnaround strategy.
Why not run AI by a board of directors drawn from various domestic airline companies?- Questions Subash Goyal, former Chairman of Aviation Committee, FICCI. Let the government first spin-off idle assets and divisions as separate profit-making entities pay off the debt and then retry to find buyers, he says. AISAT which is a tie-up with Singapore Airlines, Air India Express its low-cost international division, chartered flights operations, its MRO division which is supposed to be the best aircraft maintenance outfit and even its flight simulation and training facility which the best in the country and its immobile assets. For instance, it has offices in premium Champ Elysees in Paris, Sydney, other in New York, Hong Kong, Nairobi, three floors in Tokyo and an office in London's Bond Street. “In addition to this, it has about 10 per cent equity in Air Mauritius...but many of these idle assets have already been mortgaged,” says Bhargava.
Mark Martin says Air India is a good buy and many international airlines would buy the airline despite the debt burden. It's only that the Indian government is not marketing it properly. AI is not utilising its bilaterals adequately with a limited number of aircrafts at 118, apart from this there are a number of profitable unused international sectors as AI has flying rights to almost all countries in the world. Infact, Martin says Air India once was Asia top airlines and has a vast unused bilateral as well as unused flying rights. In fact, in 2016 it sold one of the four flying slots at Heathrow for US $ 75 million.
But proposals to sell off AI takes a head-on clash from SJM and the Sangh Parivar, in fact, ministerial panel members like Nitin Gadkari have themselves spoken against sell-off. The right-wing camp has been decrying the government's move to sell off family silver and some distractors even smell of an impending scam. And now with the Modi government shaky subsequent to the Karnataka Assembly poll results and then the by-poll results in 4 Lok Sabha and 10 assembly seats, there is less likelihood of the sell-off taking off in FY 2019!
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.