Fix an expiry date

Air India sale should not be allowed to drag indefinitely

The much-hyped disinvestment of Air India (AI) has come a cropper after a group of ministers decided to postpone the sale indefinitely. There was much hope a year ago when the Union cabinet approved in principle the sale, as many thought that the Narendra Modi-led government, which enjoyed a clear majority in the Lok Sabha, would be able to push through what coalition governments of the past could not. Today, those hopes have been belied. Taken together with other failed privatisation efforts such as the disinvestment of IDBI Bank, the Modi government’s track record on strategic sales has been below par. What is even more worrisome is the sense of denial among the government’s decisionmakers about why the AI disinvestment failed. The lack of interest in AI has been blamed, among other things, on unfavourable market conditions because of high fuel prices, a weak rupee and rising interest rates. The government has also sought to explain the failure of the AI disinvestment as due to a lack of time. According to a senior official, the next general elections are due in less than a year and there is not enough time for the whole process to be completed before the elections. Such specious arguments show the decision-makers in poor light. For one, nothing stopped the government from initiating the process when oil prices almost halved from their May 2014 levels earlier in its term.

Looking back, the AI episode is a textbook example of how not to disinvest because of the the terms embedded in the process. Take, for instance, the decision to sell only a 76 per cent stake, while keeping the remaining 24 per cent with the government. Given the government’s penchant for interfering in the affairs of all entities in which it has a stake, no bidder would want a government nominee on the board who could be under political compulsion to act against the airline’s commercial interests. The universe of potential bidders was further constrained by other clauses such as the insistence of an Indian company having the majority stake. Then there were issues with the operational autonomy of the new owner of AI because of stringent constraints on staff management. The airline has over 16,800 employees protected by strong labour unions. No surprise, then, successive governments have failed to trim the workforce. Several bidders pointed to the potential mayhem disgruntled employees could create, especially when the airline can be run with less than half the staff. A one-year moratorium, proposed by the government, would have amounted to kicking this can down the road. Compounding the problem was the mountain of debt that a new bidder was expected to deal with.

In short, the AI sale process was set up for failure. It is important for the government now to accept the reality and work on changing the onerous terms so that the process can be resumed as early as possible. There should be some kind of a sunset clause for the process, as the government cannot continue to run the airline and waste public money for an indefinite period of time. After all, the government has proved to be an unsuccessful manager of the airline as even in a favourable environment, AI made losses and lost market share. If all efforts fail, the last option would be to consider subjecting AI to the Insolvency and Bankruptcy Code.