As the government sheepishly admitted that not a single bid had come in for Air India on Thursday (31 May, 2018) evening, it is quite a mystery why loud cries from the market were not audible to either the government mandarins supervising the sale or its transaction advisor. After all, since 28 March this year, when the government made public terms of the sale, almost every stakeholder who could possibly have had an interest in examining the Air India deal, had been pointing out flaws and lacunae in the process. Now, the four ministers comprising the Air India Specific Alternate Mechanism (AISAM) will take a call on the future course of action in the AI disinvestment process. This group comprises Arun Jaitley, Nitin Gadkari, Piyush Goyal and Suresh Prabhu.
One would humbly suggest that the AISAM scrap the very idea of disinvesting Air India. The people tasked with this issue seem to have neither the expertise nor enough political firepower needed to tackle this complicated transaction once more.
The Narendra Modi government is struggling in this election year with worse than expected state poll results and time required to restart the disinvestment process with fresh terms and conditions is simply not available. The first leg of the disinvestment process took about 11 months and ended in a whimper on 31 May. This government may not have another 11 months to try and sell Air India afresh. Besides, with serious flaws in the bid conditions the first time around, how much can the government afford to be seen bending to prospective bidders' wishes the next time? It would be a futile exercise to try and offer some cosmetic changes. Either let the market force decide the price, etc at which Air India should be sold or log off the entire idea.
The government had offered 76 percent stake each in Air India and its low cost arm Air India Express with a 50 percent stake in ground handling JV AISATS. Terms of the sale showed that about Rs 33,000 crore debt would have to be borne by the acquirer; there were stiff terms for Air India employees and their future; tough conditions on who could bid and a cap of 49 percent of foreign investment including that by a foreign airline.
Secretary Civil Avation R N Chaubey said on Thursday evening that the government was expecting a "better" response than had been received and the AISAM will take a relook at everything with regards to the disinvestment. Chaubey reiterated what the government has been saying all along: On offer was 76 percent majority stake, so the government's bid to retain 24 percent stake in the divested entity should not have been a concern for bidders. He said the entire disinvestment process so far had been a "great learning experience"and that the government was in a much better position to judge what the market wants, now.
This in itself shows the government's deliberate turning away from all the concerns made public by prospective bidders all along. So, will the disinvestment process be re-started with changed conditions, or will it be scrapped? Chaubey wouldn't commit either way, saying AISAM will be approached within two weeks and the final call will rest with this group of ministers.
The disinvestment never really got 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 clamoring for a tweak in the bid conditions, objecting to many of the basic premises which form the Expression of Interest (EoI) document.
There has been widespread skepticism about the government’s toehold, since it proposes to retain 24 percent stake even after the disinvestment process has been completed. The bidders’ complaints were followed by a veiled threat by the powerful Sangh lobby against selling off of Air India to foreigners.
The Air India disinvestment process began on 28 March this year and has been billed as the largest strategic disinvestment in Independent India. The government proposes to offload 76 percent stake in Air India and its low cost international arm Air India Express, besides all of its 50 percent stake in ground handling joint venture AISATS.
Any prospective bidder would want some of these sops: Complete control with government relinquishing its 24 percent stake too, lower debt liability and clarity on manpower issues post-disinvestment. The Swadeshi Jagran Manch, meanwhile, said it was preparing a roadmap for the airline to continue with government ownership and the employee unions are opposed to the sale.
Remember, a non-airline company, with no experience in running an airline, could have also placed a bid for Air India as per conditions set out till now. This, more than anything else, showed all that was wrong with the Air India sale.
Global aviation consultancy CAPA said in a note on Thursday that it was surprised with the outcome and treats a no-show by bidders as "a significant failure". It suggested a comprehensive restructuring of Air India under a special administration, followed by 100 percent divestment with less complex terms. CAPA said scrapping disinvestment now would be unfortunate and that it expects the government to quickly address structural issues and resume the process at the earliest.
This is a tall order, by any standards. And quite tough to execute, given the political exigencies of the Narendra Modi regime right now. Will it be bold enough to bow to the wishes of the prospective bidders and make transformative changes to the Air India bidding process? This remains to be seen.
Updated Date: Jun 01, 2018 08:38 AM