Air India flop show: An IPO of the white elephant is out of question; govt better revise terms of sale to attract bidders

A failed attempt at selling Air India seems to have galvanised various arms of the government to consider various modifications to the initial offer in a second attempt. So, different government functionaries have been speaking on different aspects of the sale. One senior official hinted at the government’s willingness to offer the entire 100 percent stake this time against 76 percent in the first attempt, another has spoken of ‘widely dispersed shareholding’ which makes Air India a publicly listed company, while yet another sees nothing wrong in a larger haircut than proposed earlier so that the proposition becomes more attractive for any buyer.

In this interview to the Hindu Business Line a couple of days back, Niti Ayog Vice-Chairman Rajiv Kumar said one of the options could be having a highly “diversified distribution of Air India’s equity. It should be structured in such a way that you get a very wide dispersal and it becomes a truly public limited company with a board that is completely autonomous and not necessarily public in nature. You could get a private corporate board like you have at MNCs”.

And a day later, a senior Cabinet minister who is part of the Air India Specific Alternate Mechanism (AISAM), a group of ministers taking crucial decisions on the airline’s disinvestment, told a wider audience that listing Air India was one of the options.

Representational image. Reuters

Representational image. Reuters

In the first attempt at selling stake in Air India, the government had persisted with retaining 24 percent stake despite repeated calls from prospective bidders against such a move. It had also listed several other conditions such as keeping the acquired airline at an arms’ length from the existing businesses for any acquirer, taking on the entire workforce of the airline for at least one year and then offering a golden handshake at government’s terms and conditions and taking on a majority of the debt on Air India’s books. It is no wonder that not a single bidder came forward to even show any initial interest in Air India.

Now, as the government send out confusing signals on what the second round of disinvestment would be like, the proposal on listing or having a widely dispersed shareholding is the most bizarre of the lot. Here’s why:

1) As per existing rule of the markets regulator SEBI, any initial public offer can be made for a company which has reported a net profit for at least three preceding years. In the case of Air India, there has not been a single year of profit in more than a decade. Not since the two erstwhile airlines – Air India (international) and Indian Airlines (largely domestic) merged to form the present entity has there ever been a net profit.

2) If by using the euphemism ‘dispersed shareholding’ the government merely means arm twisting other government entities like LIC etc to participate in the public listing of Air India, this would simply mean transferring losses from one state owned entity into another.

3) If the airline is actually able to list publicly after having bypassed the SEBI profitability condition, the question is this: with the Air India brand having taken a severe beating over the last several years, with a mountain each of losses and debt and with a bloated workforce, which retail investor would like to buy share of the Maharaja?

So given all these considerations, perhaps the government has been floating trial balloons when it talks of listing Air India or seeking widely dispersed shareholding. On the other point, which is having an independent board to run Air India, how is that even feasible unless the government exits the airline completely? The independence of boards where the government nominees make up any significant quorum remains a myth.

The only option before the government that still remains is revising the terms of the sale and going ahead with a second attempt at inviting bids, like the first time, from stakeholders. This time around, it should propose a complete exit from Air India, lesser debt burden on the buyer – the first attempt saw it proposing over Rs 33,000 crore to the buyer, taking care of the employees before the sale instead of asking the buyer to bear their costs and perhaps also a climb down over the reserve price.

Instead of expecting a neat earning from the sale of Air India, the government should ideally consider a scenario where the airline is sold for a token amount, even Re 1 would do. This would rid the government of a perpetual white elephant which demands more money each passing year just to stay alive. For the buyer, it would still mean substantial investments in turning around the airline, tackling the debt pile and fighting off intensified competition in both, domestic and international markets.

That is, of course, if the government is at all serious in trying to get Air India off its hands. Many believe that the myriad and diverse statements which are coming thick and fast over the state-run airlines's fate show a complete lack of intent on the government’s part to go ahead with the sale. If this is indeed the case, it would be more of a pity since this government at least has the political will to go through with one of the trickiest divestments of all time.


Updated Date: Jun 14, 2018 12:10 PM

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