The Government of India has made arrangements to put a huge stake in the state-owned Air India on sale. That means it is putting 76% of the business for sale and can be termed as the most high profile asset sale for India in decades.
Air India until now survived to stay operational due to the taxpayer-funded bailouts. The new buyer will have to take along with that, a debt of USD 5 billion.
If the planned privatization of the debt-ridden air service goes ahead, it will become another feather in his cap to prove that he is a reformist leader.
But it’s very soon to decide that the deal is done. Many such plans went into thin air as unions have already threatened to take on the issue with wide-ranging protests if the ministers were to push ahead of this time.
A time was there in India’s history when, Air India was the only airline in the country, and now it has lost market share to new competitors and got reputed for poor service quality and cancelled flights.
It has not gained any profit since the year 2007. But with India seeing a surge in passenger numbers of around 20% every year and analysts the Indian market is vastly underserved, it could prove to be a tempting prospect for the buyers.
See what’s being offered for sale:
As per the documents released by the government, Air India’s sale will be divided into four different entities.
76% of the main airline business – consists of Air India, its low-cost arm Air India Express and subsidiary AISATS
Alliance Air – the carrier’s regional arm
Air India Air Transport Services
Air India Engineering Services Ltd
Bidders for purchase are allowed to make separate offers for the four divisions – or for a combination of them.
Who can buy it?
International routes are the most lucrative and earning part of the Air India business, with slots at major international airports which includes London Heathrow and New York JFK.
IndiGo, India’s biggest airline, has expressed its willingness by saying that it would like to carve out Air India’s international passenger airline operations – to add to the seven international destinations it already flies to.
But as for now, that is not the only available option on the table – and Indigo said it would also “evaluate” the option of buying up all of the airline business and see if it could prove to be “economically feasible for us to go down that path”.
“At the end of the day, this exercise is not about becoming bigger for the sake of being bigger – it is all about profitable growth,” co-founder Rahul Bhatia said.
But he made it very clear IndiGo was not looking at buying all of Air India’s businesses and subsidiaries.
“In our view, that would be a herculean task which would at best be a very challenging proposition and at worst an impossible task, unless an organization is willing to fund large losses for a very long time,” Mr Bhatia said.
Another potential buyer is the Vistara Airline – the joint venture airline run between India’s Tata Group and Singapore Airlines for domestic routes.
Earlier this month, Singapore Airlines general manager David Lim told the news reporters that it was “open” to an Air India bid.
“We haven’t closed the doors and when that happens we will look at it”, he said
The main rule set by the Indian nation is that majority ownership of any national airline should be with an Indian national. So this proves that, any international carrier can make a bid albeit they can go upto 49% as maximum.
Another Indian carrier, Jet Airways, is also likely to consider it seriously, but in partnership with any of the international carriers. According to the media reports, Air France and Delta may be the players.
The government has already waived some of the criteria for existing Indian airline operators to make bids – relating to net worth and recent profitability – so long as they bid by becoming a part of a consortium.
From the middle east, Qatar Airways was another international airline linked with buying a stake in Air India, but it has since denied any interest in making a bid.
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