Sell 100% of Air India or it could close, consultancy warns
Centre for Asia Pacific Aviation said sale terms were not attractive to bidders
A prominent aviation consultancy has urged Delhi to sell ailing state-owned carrier Air India in its entirety and said it should not be discouraged by the lack of buyer interest. But the firm also admitted the airline might not be a good acquisition.
The Sydney-based Centre for Asia Pacific Aviation (CAPA) said the government could make Air India a more attractive target by divesting 100% of its stake, the Press Trust of India reported. This would provide a buffer against possible future political interference.
“Unless bidders confident that they will be ring-fenced from possible political risks if successful, this could prove to be a key reason for possible non-participation by some parties at RFP (request for proposal) stage,” CAPA said in a series of Twitter posts.
Preliminary guidelines were issued by the central government on March 28 for the sale of a 76% stake in Air India, as well as management control of private entities. It hadn’t attracted a single bidder by the time the deadline for submissions closed on May 31.
Apart from the government retaining a minority share, potential buyers were reportedly put off by a condition that they agree to keep on the airline’s 27,000 employees, 40% of whom are permanent. Air India has one of the industry’s highest employees-per-aircraft ratios.
The bloated workforce is thought to be one reason for the airline’s high debt load of US$5 billion; it has not made a profit since 2007. CAPA forecast Air India would lose US$1.5 billion to $2 billion in the next two fiscal years, and that liabilities could continue to increase. It called for the Expression of Interest (EOI) terms to be amended.
“Failure to divest could see AI close unless government willing to spend taxpayer funds. Far less costly to make offer more attractive to investors. Critical that terms in EOI — particularly for labor and debt — are amended, as successful bidder will need to invest in restructuring and absorbing losses for several years, in addition to consideration paid for 76 per cent,” the consultancy tweeted.
CAPA said that under the current terms, “the risks associated with Air India’s weaknesses and challenges far outweigh its positive strategic attributes and potential”. However, the firm suggested one solution might be to allow strategic partners to integrate the carrier with their existing airline operations.
Air India operates a fleet of 142 aircraft, including 65 Airbus 320s, 15 Boeing 777s and 24 Boeing 787s and enjoys some of the most lucrative international and domestic landing and parking slots within India.