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With no takers for Air India, the government may sweeten the deal

India-Finance-Air India
Reuters/Regis Duvignau
Can Air India get a good offer?
  • Sriram Iyer
By Sriram Iyer

Senior Editor

Published This article is more than 2 years old.

The much-vaunted Air India divestment plan has been a non-starter till now, and the likelihood of the government sweetening the deal for potential buyers has increased.

With just weeks left for the deadline to express interest in bidding for the state-run airline, a senior government official said the sale plan needs recalibration. “Since there has been no interest, we will have to review it (terms of sale),” the official, not wanting to be named, told Quartz on Monday (April 16).

The Indian aviation ministry announced the disinvestment offer on March 28, which included full management control, three-fourths of the stake (76%), about half the debt, and all working capital dues.

However, by now, two major Indian airlines, IndiGo and Jet Airways, have explicitly ruled themselves out of the race, citing concerns over the sale terms. Air India’s debt of over $5 billion (to be borne by the buyer) and the prospect of having to buy its loss-making domestic operations alongside two of its profitable entities may have put them off.

“Buying an airline like Air India really can’t be likened to buying a commodity like a car or an aircraft. It’s an entire institution and organisation that one is committing to acquire and turn around. So, one must be clear with the level of assurance that one is making,” Mark Martin, head of aviation consulting firm, Martin Consulting, told Quartz.

The government’s hopes are now pinned on one of the country’s largest conglomerates, the Tata Group. However, relying on a single bidder is unlikely to yield the best price.

In any case, it is unclear yet if the government will reduce the prospective buyer’s debt burden or if it will sell the airline piecemeal.

Meanwhile, some foreign majors reportedly remain interested in the nearly 90-year old Air India. However, ideology may turn out be a hurdle in their case.

On April 16, Mohan Bhagwat, the influential chief of the Rashtriya Swayamsevak Sangh (RSS), chipped in with a warning for the government. ”Give Air India to someone who can run it well, but the entity must be an Indian. India must not cede control over its skies,” Bhagwat said. The Hindu nationalist RSS is the ideological parent of prime minister Narendra Modi’s Bharatiya Janata Party (BJP).

The RSS supremo also questioned the concerns over the carrier’s valuation. “One must not just look at the (total) debt of Rs55,000 crore ($8.4 billion),” he said. Referring to the airline’s over 30 international airports and its massive land bank, among others, Bhagwat added, “There are also other tangible and intangible assets.”

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