Monday, April 16, 2018

Air India sale: How Modi government’s plan to retain 24% stake, other riders are keeping bidders away

Mumbai: The government’s decision to retain a 24% stake in Air India after the sale of 76% is deterring prospective buyers from bidding for the bankrupt airline, sources said. A 24% stake would give the government two nominees on the board which would mean continued interference in the running of the business, they said. While both domestic and international airlines were looking forward to the divestment of Air India, the conditions for the sale are onerous, they pointed out. The other condition that could have scared away prospective buyers is that the airline needs to be listed within a specified time frame. Moreover, buyers are not comfortable with the fact that the Air India operations need to be run at an arm’s length from their existing business, persons familiar with the development said.

“The government is using the same approach as it uses for any standard infrastructure project divestment. Air India is a different entity. The process should have been more consultative and open and commercial terms should have been set only after the stakeholders are taken into confidence,” said Amrit Pandurangi, an independent aviation consultant and formerly a director with global advisory firm Deloitte. Within a fortnight of the government announcing the sale of a 76% stake in Air India through an open bid process and sharing conditions for this in a preliminary information memorandum (PIM), on March 28, leading budget airline IndiGo declared that it does not have the capability to turn around the ailing airline and that it would not bid for it on the current terms. The country’s second-largest airline, Jet Airways, soon followed, saying it was opting out of the process.

A news report on Wednesday suggested that the Tatas, which partners Singapore Airlines in Vistara and Malaysia’s AirAsia, too may hold off, as certain conditions in the PIM were found onerous. Aviation industry insiders say what’s making airlines wary is the government retaining a 24% stake and laying down conditions on how the business is to be run by the buyer till such time as the government is a shareholder in the company. “The government must realise that 76% stake is more important than 24% and that the bigger stakeholder would have more skin in the game,” an industry expert said.
A PIM requirement that does not allow airlines to change consortium partners subsequent to the submission of the EOI is also seen as an unnecessary hurdle by airlines. “In case an airline wants to reduce its holding in the consortium or it does not find the terms of reference good enough to stay in the race for the acquiring Air India at the RFP stage, it is difficult for it to wriggle out. And there are many things that the government is holding close and not spelling out clearly at the EoI stage,” said an airline executive, not wanting to be identified. For existing airlines who were looking at Air India, a big deterrent is a clause in the PIM that states that, “till such time the GOI owns any shareholding in the company, the confirmed selected bidder shall carry on the business of the companies on a going-concern basis, as was being conducted prior to the date of completion of the proposed transaction; and on an arms-length basis from its other business.”
16/04/18 Financial Express