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GOI trying another shot at Air India Privatisation amid Pandemic

Department of investment and Public Asset Management-DIPAM, the agency tasked with raising resources for the government through the optimal Mangement & Monetisation of the government owned entities is slated to extend the deadline for submitting the EOI-expression of interest for the Airindia privatisation from 31st August by another month to enable the interested parties submit their proposals. Pandemic related logistics and decision deferements by the corporates may have prompted the agency to extend the date by another month.

Airindia boasts of one of the strong Non Stop Long Haul/Medium Haul Networks in the world

  • Airline operates 5 Non Stop routes to USA, two routes to Australia, 7 routes to Europe
  • Airline has one of the youngest wide body long haul Aircraft
  • Staff cost of the Airline is @ 11% of the Airline well within the international airline industry.
  • Restructured debt of the Airline is backed byAssets

According to the reliable sources, 5 entities viz., Lufthansa airlines, Singapore Airlines, Hinduja Group, Ethihad Airways and India’s TATA group are showing interest in acquiring Maharaja either individually or through an Indian JV partner. As per the existing tentative mechanism set out by GOI, while NRI’s are allowed to own 100% of Airline, foreign entities or airlines may be allowed to own only 49% and the remaining with an indian partner. for the record Government is willing to disinvest 100% in Airindia Express-the profitable subsidiary of the Airline along with its ground handling entity-Airindia SATS.

earlier indications in the initial stages of the process, TATA group was willing to bid for the Airline in association with its illustriuos partner SIA-Singapore International Airlines. another gulf based carrier had also shown interest in partnering with TATA’s. In any case we may see the definite participation of TATA group in Airindia bidding process solely or in partnership with a foreign airline. London based Hinduja group had been showing consistant interest for Airindia for the past 18 months.

The Hurdles for Air India Privatisation-The myth of Excess Staff strength

while the burgeoning debt of the Airline, to the tune of 8 Billion US$ is the main deterant for the potential bidders, the staff strength of the airline is also being projected as the financial hurdle for the bidders. while the Government is addressing the issue of scaling down debt to less than 4 Billion US$ which is backed by assets of Aircraft, ground slots and flying rights. as of November 2019 Airindia has a total staff strength of 9675 around 30 % of whom will retire by 2024. as per the intial provision of the bidding document, the winning bidder may not lay off any employee in the first year of takeover.

The myth of excess staff in Airindia needs to be busted by Government and DIPAM as the airline’s cost of the staff is @ 11% of the total revenue of the Airline, which is well within parametres of most successful airlines in the world like Singapor Airlines @ 17%, Lufthansa @19% and India’s own largest airline INDIGO @ 12%. as one third of staff will retire within 3 years including moratarium of first year, the Staff issue will not be a hindrance for the bidder, given the vast experience of Airindia’s pilots-one of the best in the world and its ground and cabin crew. However, the recent crash of Airindia Express crash may have dented part of its reputation as the safest airline.

The Crown jewel of the Airline

while the Maharaja brand is the iconic flag carrier the bidder can cherish, financially and commercially Airindia boasts of one of the most sought after landing rights in the world, in Europe and North America, most lucrative in the industry. added to that Airindia operates one of the largest Non Stop Long haul flights in the world to these destinations.Pre pandemic the Airline used to operate the following non stop routes, crown jewel for any Airline in the world.

Mumbai-Newark, Delhi-Newyork, Delhi-Chicago, Delhi-SanFrancisco, Delhi-Washington, Mumbai-Rome, Mumbai-London, Mumbai-Manchester, Delhi-Paris, Delhi-Stockholm,Delhi-Madrid, Delhi-Frankfurt,Delhi-Melboune/Sydney

With GOI’s disinvest target of INR 2.10 Lakh crore is in disarray due to COVID induced economic recession, government and DIPAM may go full throttle in fructifying the privatisation of Airindia.

Rambabu Vankayalapati(FB)   @vrambabuv( Twitter)

 

 

 

 

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