The proposed disinvestment of Air India has not exactly gotten off to a flying start. First, it was the tepid response from potential bidders, with a prominent airline even walking out of the entire game early on. Next, the remaining bidders began clamouring for a tweaking of bid conditions, objecting to many of the basic premises that form the expression of interest (EoI) document.
There has been widespread scepticism about the government’s toehold even after the disinvestment process is completed. The bidders’ complaints were followed by a veiled threat by the powerful Sangh lobby against selling Air India to foreigners. Now, as the nation awaits some further developments on the sale with the 31 May deadline for submitting bids fast approaching, comes a statement which opens up the possibility of no sale.
The Air India disinvestment process began on 28 March this year and has been billed as the largest strategic disinvestment in independent India. So when Civil Aviation Secretary R N Choubey said on Tuesday that the sale may not happen if the price is not right, it sure created a flutter. The Government proposes to offload a 76 percent stake in Air India, Air India Express and AISATS and has invited bids for the same.
“The Government retains the right to sell or not sell Air India if the bid price is found to be inadequate,” Choubey said. Of course, this is the established principle for any government sale, but the timing of this assertion assumes significance since the sale process has already seen bumps. Remember, Air India disinvestment is a big deal for the Modi government; an earlier attempt at selling off the loss laden airline was thwarted due to political machinations. It has been often said that if any government can take the bulls by its horns so to speak and disinvest Air India, it is the Modi government.
As this piece noted earlier in the week. There has been no privatisation of public sector companies worth the name in the four years of this government. Sure, a few strategic sales have happened, but these have not been significant ones. Air India is up for sale, yes, but the conditions set have put off buyers, and one can’t help wondering if this was deliberate. Áfter Tuesday's warning on price adequacy, one can’t help but wonder if the statement by the Secretary is also deliberate. After all, why speak of the option of not selling even before knowing the bids? Is it an indication of a long-drawn, much publicised process that could finally end in no sale at all? People close to the developments in the AI disinvestment process have been saying for long that the government will “go through the motions” but may not sell off the airline in the end.
Chaubey went on to say that a transaction advisor to the sale process is tasked with determining the enterprise value of Air India and an asset valuer will provide the value of assets. The inputs of both these advisors will be then taken to the Air India Specific Alternate Mechanism (AISAM), comprising minister of civil aviation, finance, and road transport & highways, for determining a floor price. This is the price below which Air India will not be sold.
“The inputs of the transaction advisor and the asset valuer will be considered but they will not be mandatory for AISAM for determining the floor price. These valuers will provide their inputs by August....if we don’t get the right price, we may not sell,” Chaubey said.
He also said that the highest bidder for AI should become clear by the end of August – this bidder will have to meet the ‘'substantial ownership and effective control' (SOEC) criteria and get security clearances before the stake sale takes place and will have time till December this year for getting these clearances. The SOEC criteria mandates that the airline remains in Indian hands, with majority Indian ownership and conducts business in India.
Remember, the government has already extended the last date for intimating qualified interested bidders eligible to bid for Air India to 15 June from 31 May. The last date for interested bidders to submit their Expressions of Interest has also been postponed to 28 May from 14 May. Anyway, AI divestment has already seen the Centre for Asia Pacific Aviation (CAPA) consultancy KPMG calling on the government to revise the EoI and offer more liberal terms to align it to investor interests. “As it happens in such complex transactions, being flexible and having an open mind on major issues is necessary. Revising the EoI with more liberal terms will be required to further align it to investor interest,” CAPA said in a statement issued earlier.
And this piece talks of possible concessions by the government to make the Air India offering more attractive to potential bidders. The main concerns for bidders are the prospect of the government retaining a 24 percent stake, a hefty debt liability, a lack of clarity on manpower issues post disinvestment, among others.
Not just confused bidders, the government is also facing internal opposition. Subramanian Swamy has already used the word ‘scam’ when referring to AI disinvestment, the Swadeshi Jagran Manch is preparing a roadmap for the airline to continue with government ownership and employee unions are opposed to the sale.
When asked whether a non-airline company, with no experience in running an airline, can also place a bid for AI, Chaubey replied in the affirmative. This, more than anything else, shows all that is wrong with the AI sale and is a possible pointer to why the sale may eventually get stymied all together.
Updated Date: May 23, 2018 15:22 PM