ONE of the biggest challenges for the Indian government has been Air India, the country’s national carrier, which has for years been bleeding with its enormous losses, heavy over-staffing and a directionless journey.

The National Democratic Alliance (NDA), after much debate, decided last month to sell a 76 per cent stake in the airline and transfer management control. The government also decided to include profit-making Air India Express, the low-cost carrier, and the Air India Air Transport Services, a successful joint venture with SATS, the Singapore-based ground-handling and in-flight catering service provider in the deal.

The government has set May 14 as the last date for submission of expressions of interest. Unfortunately, not many players are keen to take up the offer.

Indeed, at least three major Indian players including IndiGo, the largest domestic operator in the country; Jet Airways, one of the oldest private carriers; and the Tata group (incidentally, the late JRD Tata started Tata Airlines in 1932; it was renamed as Air India in the post-WW-II phase and was later taken over by the government), were seen to be in the race to acquire it.

However, this past week has seen all three players seen backing out of the move to privatise Air India, the national carrier, which has a fleet of 115 aircraft, covers nearly 40 international destinations — but also has a bloated workforce of nearly 12,000 permanent employees and nearly 3,000 on contract.

The NDA government has also come out with rather stiff conditions for those bidding for control of the airline. The bidder will have to — in case it wins the bid — lock the entire shareholding in Air India and the special purpose vehicle till the end of the third year of the transaction.

InterGlobe Aviation, which operates IndiGo, the country’s largest carrier (with a market share of nearly 40 per cent), last week backed out of the deal.

The government, after much debate, decided last month to sell a 76 per cent stake in the airline and transfer management control. Unfortunately, not many players are keen to take up the offer

“From day one, IndiGo has expressed its interest primarily in the acquisition of Air India’s international operations and Air India Express,” said Aditya Ghosh, president and whole-time director of the airline. “However, that option is not available under the government’s current divestiture plans for Air India.”

According to him, IndiGo did not have “the capability to take on the task of acquiring and successfully turning around Air India’s entire airline operations.” The private carrier is one of the fastest-growing low-cost carriers in the world and operates over a thousand flights daily connecting 50 destinations.

Interestingly, last month there was speculation that IndiGo and Qatar Airways would jointly bid for Air India. However, both airlines denied the reports.

Besides Qatar Airways, there was also speculation that Emirates, the leading carrier from Dubai, was also looking at the possibility of investing in Air India. The airline has, however, denied the report and says it has no plans of investing in other carriers.

THE Tata group, the pioneer of aviation in India, currently operates two airlines in the country, both as joint ventures. While it operates the full-service carrier Vistara with Singapore Airlines, it also has a tie-up with Air Asia and operates AirAsia India on domestic routes.

While the group is not commenting on the prospects of its bidding for a stake in Air India, it is believed to have ignored the current round as they were not meeting its requirements.

In fact, both the airlines in which the Tata’s have a stake are now seeking

government clearance for operating international flights. While Vistara is expected to start international services from the second half of 2018, AirAsia India is expected to follow suit by the end of the year.

Like the other domestic Indian carriers who now operate international flights — including IndiGo, Jet Airways and SpiceJet — both Vistara and AirAsia India will look at the Gulf and Southeast Asia as obvious destinations from India.

The Indian government recently changed the rules relating to domestic carriers operating international flights.

Earlier, an airline had to have five years of domestic operations and a fleet of 20 aircraft; recently, it waived the five-year requirement for domestic carriers — much to the delight of the Tata group carriers, but to the anger of IndiGo, Jet and SpiceJet.

Vistara initially expects to operate international flights on the five-hour flying range — mainly the Gulf or Southeast Asia and a few months later try to operate services to the Far East, Europe and perhaps even the US.

AirAsia India, however, hopes to focus on Southeast Asia. According to Amar Abrol, CEO and managing director, AirAsia India, the airline plans to operate flights to Kuala Lumpur and Bangkok and later expand to other cities.

There is speculation though that if the government was to dilute its disinvestment strategy and allow more freedom for private players, some of the airlines might reconsider their decision to withdraw from the exercise.

The Centre for Asia Pacific Aviation (CAPA), for instance, along with international consultancy KPMG, believes that the government has to revise its conditions for the divestment of Air India.

“As it happens in such complex transactions, being flexible and having an open mind on major issues is necessary,” says a CAPA report. “Revising the expression of interest with more liberal terms will be required to further align it to investor interest.”

If the government goes in for a revision, the existing domestic carriers could reconsider their decisions and bid for Air India, it says.

Besides revising the conditions the government must also have clarity on labour issues, says the consultancy.

Of course, the labour unions of Air India have already started campaigning against the divestment of government stake in the airline. A forum of 10 Air India employees’ unions last week accused the bidders of using arm-twisting tactics to force the government to sell the airline at a low price.

“The so-claimed probable buyers are using arm twisting tactics so as to put pressure on the government to succumb to change the terms and conditions best suited to them and the Air India is sold for a song,” said the Joint Forum of Air India Unions/Guilds/Association.

Published in Dawn, The Business and Finance Weekly, April 16th, 2018