Air India sale plan grounded

HARSH PURCHASE CONDITIONS ‘PUTTING OFF’ BUYERS AS DEADLINE EXTENDED

THE Indian government’s attempt to sell debt-laden national carrier Air India is in danger of hitting the skids as a key deadline looms with no bidder in sight.

Prime minister Narendra Modi’s administration announced in March that it would privatise the be­leaguered airline. But the plan has struggled to get off the ground with several prospective buyers ruling themselves out.

“Conditions put forth by the government with re­gards to debt and employee costs are restrictive and have put off investors,” aviation expert Amrit Pan­durangi said.

“The government needs to address the concerns of the private investors if the stake sale is to move forward,” the independent analyst added.

Air India, founded in 1932, was once the country’s monopoly airline, known affectionately as the “Ma­haraja of the skies”.

But it has been haemorrhaging money for years as it has slowly lost market share to low-cost private players in one of the world’s fastest-growing airline markets. Successive governments pumped in bil­lions of dollars to keep it afloat before Modi’s cabinet last year gave the go-ahead to start the process of selling the flagship carrier.

The government wants to sell a 76 per cent stake in the 86-year-old airline and offload $5.1 billion (£3.8bn) of its debt in what would be one of India’s biggest ever divestments.

However, the proposal has failed to fly with several major airlines, including IndiGo, now India’s num­ber one airline, and Jet Airways, which said last month they were out of the running after reviewing government bid documents.

Analysts say the company’s large debts and gener­ous pension schemes are putting off buyers.

Air India is about $8bn (£5.9bn) in the red and reported losses of almost `58bn (£639 million) for the financial year ending March 2017.

“We don’t think any of the Indian airlines have the financial strength to bid for Air India,” said Binit Somaia, south Asia director at the Centre for Avia­tion (CAPA).

Airlines are also being deterred by the sale terms, experts say.

The documents state that the buyer has to pur­chase all of Air India’s six entities, three of which are loss-making.

IndiGo said it was interested only in Air India’s international routes and not its loss-making domes­tic operations.

“IndiGo has been a highly successful carrier. It is a good decision on their part to focus on organic growth,” said Somaia.

Under any deal the government would retain a 24 per cent stake. Its insistence that the winning bidder cannot merge the airline with existing businesses as long as the government keeps its stake is seen as a key stumbling block.

Last week, the government was forced to extend its deadline to May 31 for companies to submit an expression of interest after none was received.

Indian media reports say the tea-to-steel con­glomerate Tata Group, which founded the airline before it was nationalised in 1946, is the best hope for a sale.

Others have suggested that Lufthansa, Etihad Air­ways and the British Airways-led International Air­lines Group might come forward. The three carriers declined to comment.

Singapore Airlines, which has a partnership with Tata in Indian airline Vistara, has also been touted. A spokeswoman said it will “keep its options open”.

Commentators say it will be difficult politically for Modi’s Bharatiya Janata Party (BJP)-led government to sell the state carrier to a foreign group, making a domestic-international partnership most likely.

But first it looks like it will have to ease its sale terms to attract any formal bids.

“If the deal in its current form doesn’t go through, the government will have to go back to (the) drawing board and relook at the deal structure,” Manish Agar­wal, of PricewaterhouseCoopers, said. (AFP)