The Indian government’s efforts to sell state-owned carrier Air India received a boost when two airlines – IndiGo and Etihad Airways – reportedly showed interest.
Representatives of the two airlines met Indian government officials and “unofficially” showed interest in the ailing national carrier, the Economic Times reported, quoting senior government officials. They added that some private equity investors had also shown interest.
Though Tata Sons Chairman N Chandrasekaran stated last month that they will look at bidding for Air India, government officials clarified that the salt-to-software conglomerate had so far not approached them.
The Tata Group, which once owned Air India, now runs two airlines – Vistara and Air Asia – in collaboration with Singapore Airlines and the Malaysia-based Air Asia Bhd respectively.
For IndiGo, a market leader in the domestic circuit with more than half the market share, acquiring Air India would strengthen its international reach. In the past, it was keen to acquire only the international operations of Air India.
But for IndiGo it would be a challenge to integrate Air India’s full-service model with its own low-cost model.
As for the Abu Dhabi-based Etihad Airways, it can buy only with the help of a partner as Indian laws prohibit a foreign carrier owning more than 49% in an Indian airline.
Etihad used to have a 24% stake in the now defunct Jet Airways, but decided not to fund the ailing airline, which was grounded in April.
Civil Aviation Minister Hardeep Singh Puri said the government will issue an expression of interest for the privatization of debt-ridden Air India “in a matter of weeks.”
The minister exuded confidence that the investor response would be favorable, considering Air India’s robust service network on domestic and international routes, besides its strong brand recall.
In November, Puri told Parliament that the national carrier might have to shut down if it was not privatized. But now the minister sounds positive.
“Air India is a national asset. The Maharaja is a great brand, owns 120 aircraft, half of which are owned and the rest leased,” he said at a press conference on Tuesday. “It runs a large number of domestic routes and flies to 40-50 international destinations … We want an Indian entity to acquire it for strategic objectives.”
However, he declined to comment on the government’s expectations of how much the proposed sale might fetch, but hinted it will make money.
Chastened by last year’s failed show, the Indian government this time is offering to sell 100% of Air India. It is also offering other incentives such as a restructuring of debt and liabilities and allowing the new owner to offer a voluntary retirement scheme to employees.
According to the new plan, the government will pay Air India’s dues to vendors such as airports and oil companies, amounting to 220 billion rupees or US$3 billion, before selling the airline.
In 2018, the government tried to divest Air India, but there were no bidders. The government at that time offered to sell a 76% stake in Air India and retain 24%. This failed to inspire confidence amongst bidders as they felt government control of a quarter of the total stakes would lead to political interference.
There was also a lack of transparency regarding the employee-retention clause. Bidders weren’t ready to deal with staff that couldn’t be laid off.
The federal government has set a disinvestment target of 1.05 trillion rupees ($15 billion) for this financial year. Apart from Air India, it plans to sell Bharat Petroleum, Shipping Corporation of India and some other state-owned enterprises.
The airline was founded in 1932 by Jehangir Ratanji Dadabhoy Tata, the then chairman of Tata Group. In 1953, the Indian government purchased a majority stake in the carrier from Tata Sons, but allowed JRD Tata to continue as its chairman until 1977.