No Air India sale under the current Modi regime

New Delhi: Air India will not be sold during the remaining tenure of the Modi government and the process could be started afresh only after 2019 general elections, a top government source told Financial Chronicle.

The source, who is directly involved in the strategic disinvestment process of the loss-making carrier, said there is a broad thinking in the government to retain the ‘swadeshi’ tag for the national carrier and hence investment proposals from a foreign carrier would neither be pursued nor entertained.

The government’s latest stand is the second blow to Air India selloff plan in less than a month after the airline drew a blank in the first round of bidding with no private party showing up on the last date of the bid date late last month.

“The current market conditions are not conducive for Air India disinvestment. High oil prices have again raised the scare of a crisis in the aviation sector worldwide and selloff at this juncture would have limited interest with much lower valuation,” said the source.

“The situation would be reassessed when oil prices are low but this is bound by uncertainties and may take the process too close to general elections. The selloff thus is unlikely in current tenure of the government,” the source added.

The initial setback to Air India divestment seems to have come as a blessing in disguise for the government as it has given it more time to fine tune the process and prevent any stress sale from becoming a big political issue ahead of elections.

But the failure to take major stride in its stated policy on strategic disinvestment is being seen as government’s weakness to push through hard decisions. There has been a series of setbacks for the Modi government's drive to rope in private investors in the airline sector.

While it has failed to part-privatise Ahmedabad and Jaipur airports despite repeatedly tweaking the bid conditions, the government had to recently abort its plan to divest 51 per cent in helicopter operator Pawan Hans due to tepid investor response.

With fight for next general elections in 2019 already started, it will be even more difficult for the government to sell public assets going forward.

The process of Air India disinvestment started with the government first extending the expression of interest (EoI) submission deadline to May 31 from the previous date of May 14.

As the nodal aviation ministry had received a lot of queries from the prospective bidders and responded to them it was expecting significant interest from both local and foreign airline firms to the strategic sale of the national carrier.

The government had proposed selling 76 per cent of its stake in Air India along with transfer of the management control to private players. It has decided to retain the remaining 24 per cent equity stake in the debt-laden company to sell it in future when it gets optimum value.

But prospective buyers were miffed at government plan to retain 24 per cent stake fearing it will curtail their decision-making power besides unnecessary interventions.

The preliminary information memorandum (PIM) also required the buyer to take a large portion of debt and working capital liabilities. The conditions on treatment of existing Air India staff also put them down.

As per the PIM, Air India and Air India Express would retain Rs 24,576 crore debt excluding net current liabilities after the sale. The investors have found this a big dampener.

“There was no value proposition in buying Air India going by the terms of reference. The government will have to completely redo the terms and conditions. If the deal does not close by the end of this year then the chances of selloff is quite low,” said a senior executive of a private airline.

The Air India divestment plan includes strategic sale of 76 per cent in Air India, 100 per cent of low-cost international arm Air India Express and 50 per cent in its ground-handling joint venture Air India SATS Airport Services. Global consultancy Ernst &Young is the transaction adviser for the process.