Sometimes, acquisitions are all about timings. And at the moment - blame the virus - the timing is not right
The government may have extended the timeline to sell Air India. But clearly, this may not be the right time to sell the national airline.
Ask those who have done mega deals, and they will tell that sometimes, timing can be everything in an acquisition.
One could start by asking the Tata Steel management.
The steelmaker has been struggling with its ambitious acquisition of Corus in 2007, and the $13 billion deal remains India's biggest. It was done when the commodity cycle was near its peak, but soon afterwards there was a meltdown from 2008 on wards.
Since then, the Tata Steel management has tried nearly everything - from shedding some of the assets to attempting a joint venture with another steelmaker - but nothing has worked so far in Europe.
In the aviation industry itself there are at least two promoters who would have wished they hadn't done the acquisitions that they did.
Jet Airways founder Naresh Goyal acquired Air Sahara in 2007, for Rs 1,450 crore. It was an expensive deal, but it was a price that Goyal was eager to pay to keep a rising competition - Vijay Mallya and his Kingfisher Airlines - at bay.
Air Sahara was a loss-making airline to start with. Goyal tried turning it around by rechristening it JetLite, the low cost arm of Jet Airways. Despite the airline veteran's ambitions, JetLite remained small with a fleet of less than 10 aircraft. It losses widened to over Rs 300 crore in 2018.
Air Sahara was one big reason why Jet Airways debt mountain kept growing, eventually leading to its downfall in April 2019.
Ironically, Kingfisher too couldn't survive after an expensive acquisition, this time of Air Deccan in 2007. Both these acquisitions were followed by the global slowdown.
Fast forward to 2020.
When the government announced its second attempt to sell Air India in January this year, the world economy - and India's - were already on a slow trajectory.
More importantly, the aviation sector in India had just seen one of its slowest years in 2019. Otherwise the world's fastest growing market, the Indian aviation industry grew by just 3.74 percent in 2019, in terms of passenger traffic.
The sentiment, given that Jet Airways was in suspension since April 2019, wasn't great either.
Nevertheless, the divestment announcement and the new, and friendlier, set of conditions, created some excitement. A few names also made the rounds - Tata Sons, the Adani Group and IndiGo, to name a few.
But the virus has infected the remaining optimism too. If the global wealth funds were interested in Air India, they would be thinking twice after seeing the bloodbath of the last couple of weeks.
Most of the major airlines, including Singapore Airlines, Lufthansa and Emirates, have either announced grounding of fleet or asked employees to go on unpaid leave, or both. One budget airline in the UK has already collapsed.
In India, within days of the virus resurfacing in the country, IndiGo said its bookings were down by up to 20 percent. Vistara, the joint venture between Tata Sons and Singapore Airlines, also said its routes have been hit. IndiGo and its peer SpiceJet have announced sales in a season which would have otherwise seen the start of peak business.
The disruption from the virus will force those interested in Air India, to rework their math. A severe slowdown now means that it will take that much more time and resources to finance Air India's debt, and also limit capital that will be needed to turn around the airline's operations. For instance, some of its fleet needs to be replaced and that comes expensive.
For all you know, Air India may still manage to get a suitor or two. But the valuation will take a beating.
So, should the government call off the process ?Not really. But it will be prudent to pause it for the moment, and resume when the conditions are better. After all, there is no point in selling your jewels for cheap.