No government would want to make the wrong kind of headlines in an election year but this is not the only reason why Air India's disinvestment has been shelved. Here are the reasons why the likely investors stayed away from bidding, forcing the Modi Government to call off its ambitious stake sale
TOP CONTENDERS| Foreign entities including foreign airlines could own only up to 49 per cent stake in the airline, limiting the number of bidders. For an airline of Air India’s size, few local companies have the wherewithal to bid. Putting conditions that went against foreign participation only harmed the process.
POLITICAL IMPLICATIONS |Remember 2019 is an election year and a new government has to be sworn in May. Air India was a big ticket disinvestment and bound to attract negative publicity which it did. The government could not be seen selling the Maharaja in the run-up to the elections.
GOVERNMENT AS SHAREHOLDER | The government would have retained 24 percent stake in the divested company. Given the Indian government’s track record of companies where it has sold a majority stake but continued to hold a minority share -- Tata Communications, BALCO, Hindustan Zinc – most companies would have been reluctant to have it as a shareholder and also give it a seat on the board.
BUREAUCRACY AT PLAY | A typical bureaucratic way of execution -- bundling sale of loss-making AI with profitable arm Air India Express. AI made a loss of Rs 5,765 crores in FY17 against AI Express’ profit of Rs 297 crores. Both would have been attractive but only individually to a different set of buyers.
LACK OF CLARITY | No clarity on AI’s terms of agreements with aircraft suppliers (Boeing and Airbus) and its vendors. Typically compared to private airlines, AI’s terms and conditions are very favourable to the other side, making its own cost of operations very high -- something a new buyer would never have liked.
FAT MANPOWER | Huge workforce and consequent wage bills. As on December 31, AI alone had 11,214 permanent staff excluding 2,913 contractual and 2,155 casual. There were 2,661 employees on deputation.
DEBT MOUNTAIN: Air India alone, not including the two subsidiaries bundled in the divestment, had a debt of Rs 48,781 crore as on March 31, 2017. Most of this would have been passed on to the new owner. This pushed back the interested parties as none would want to inherit such a large debt even before it has taken over the operations of a loss-making airline.
PENSION BILLS | Up to 4,217 employees will retire by March 2023. No buyer would want to take that pension liability. There are as many as 6 unions at AI -- pilots have one, engineers have one too. It won’t be easy to persuade a pampered lot, long used to enviable perks and freebies.
PERKS OF AIR INDIA EMPLOYEES FLY HIGH | AI employees, including retired ones, get lifetime benefit of subsidized air travel. Each gets a gratuity of up to Rs 10,00,000. You can’t imagine this happening in private sector. Encashment of privileged leaves up to a whopping 300 days and of sick leaves up to 120 days, another big liability.
First Published on Jun 20, 2018 04:24 pm