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A question mark now hangs over whether the Modi government will be in a position to divest its stake in Air India during its current term, which ends in May 2019.
It has taken the government 11 months since June 28, 2017 — when the Cabinet Committee on Economic Affairs gave its nod for the divestment of Air India — to find out that the sops it was offering for a majority stake in the state-owned airline were not enough inducement for potential bidders.
It is also clear that the Centre will have to sweeten the deal. The current deal being offered by it — including moving the airline’s ₹30,000-crore debt into a new specially created vehicle, and assuring potential investors that the voluntary retirement scheme for Air India employees needs to meet government guidelines — has not lured any players.
What is the market looking for? While it is not yet clear what the international players are looking for, among the domestic ones, IndiGo, which had expressed an interest in Air India initially, backed out when the government decided to package Air India, Air India Express and its ground-handling arm.
IndiGo decided to withdraw its bid when this happened, as it was interested only in Air India’s international operations.
Among the other domestic carriers, Jet Airways decided against making a bid, while SpiceJet maintained that it was too small to bid.
What needs to be done
If the government wants to meet the expectations of the Indian players, it will probably have to break up Air India’s domestic and international operations. It will also have to give thought to the airline’s unviable routes, which it operates as a part of its social obligations of being a state-owned airline.
International and domestic airlines are likely to seek greater clarity on what role the government is going to play in the carrier following the divestment.
The government could probably have saved the day if it had listened to the advice of the Centre for Asia Pacific Aviation (CAPA) and consultancy KPMG, which had called on it to revise the Expression of Interest (EoI) and offer more liberal terms to align it to investor interests.
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