Airlines from around the globe are expected to participate in the divestment of Air India and Air India Express, a process which started on Wednesday with the release of the Preliminary Information Memorandum inviting Expression of Interest from interested parties.
The thinking among analysts is that European airlines such as Air France KLM and British Airways will look at a stake in Air India as a good way of not only bringing down their employee costs but also tapping into a growing out-bound market from India.
Mark Martin, CEO, Martin Consulting, feels strategically Air India makes an outstanding secret weapon for any legacy European airline which has a bone to pick with the Gulf carriers. “India offers 30 per cent lower operating costs in comparison to Europe; so that can clearly do some level of damage going after the Gulf airlines’ bread-and-butter revenue,” he says.
A stake in Air India will also help any European airline take the fight back to their West Asian counterparts which have managed to capture a large chunk of West-bound traffic to and from India.
Analysts, however, feel German carrier Lufthansa is unlikely to participate in the bidding as it has already invested in some airlines and is looking at consolidating these investments.
Out of the eight airlines BusinessLine approached for comments on their interest in AI, Singapore Airlines and the International Airlines Group responded. Singapore Airlines reiterated what it had said earlier: it will keep its options open with respect to the proposed divestment.
A spokesperson for IAG said it does not publicly address issues like this. IAG is one of the world’s largest airline groups with 547 of its aircraft flying to 268 destinations and carrying around 105 million passengers each year. Formed in January 2011, IAG is the parent company of Aer Lingus, British Airways, Iberia and Vueling.
While a media reports in the Gulf have said that Qatar Airways, Etihad and Emirates are unlikely to participate in the Air India divestment process, it remains to be seen whether these carriers will let go of an opportunity in a market which has shown double-digit growth and is set to become the third-largest market globally in terms of passenger numbers by 2026.
A stake in Air India will allow the West Asian airlines to get a greater hold on the Indian market. Emirates and its low-cost arm, flydubai, are already the largest foreign carriers operating over 190 weekly flights to and from India.
Air India should also look like a very good investment for Qatar Airways because Qatar is the only country from the region with which India has not exchanged air services bilateral rights in the recent past.
Besides, the over 2,500 international arrival and departure slots — including 72 in American and Canadian airports — and over 3,700 slots at airports in India, is just one of the reasons why most international airlines should consider Air India as a good investment opportunity. The airline also has 70 slots a week in the UK at London and Birmingham, apart from 280 arrival and departure slots in the Gulf including in Abu Dhabi and Dubai.
A new investor will also be able to better flog the airline’s assets to get a larger share in the out-bound traffic from India . Currently, Air India and Air India Express are the leaders in the international travel market in India with an overall market share of 42.8 per cent among Indian carriers.
However, there is another aspect which needs to be kept in mind when considering the divestment. The process has started, but a question mark still hangs: by when it will be completed and whether the general elections in 2019 will put a spoke in the process?
This is something which Martin hints at when he says that given the complexity of Air India, its size, network, real estate, assets, fleet and subsidiary companies, “there is no way we can expect to see a deal closure before the 2019 elections.”
Kapil Kaul, Chief Executive Officer, Centre for Asia Pacific Aviation, also feels that meeting the December-end deadline for completing the divestment process may be challenging.
In February, Jayant Sinha, the Minister of State for Civil Aviation, had told newspersons that the successful bidder will be announced by the end of June and the legal process of privatisation will be completed by December.
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