Air In­dia break-up an im­pend­ing op­tion

Modi wants sale process to start by early 2018

Kuwait Times - - BUSINESS -

In­dia is con­sid­er­ing sell­ing sta­te­owned Air In­dia in parts to make it at­trac­tive to po­ten­tial buy­ers, as it re­views op­tions to di­vest the loss-mak­ing flag­ship car­rier, sev­eral gov­ern­ment of­fi­cials fa­mil­iar with the sit­u­a­tion said. Prime Min­is­ter Naren­dra Modi’s cabinet gave the go-ahead last month for the gov­ern­ment to try to sell the air­line, after suc­ces­sive gov­ern­ments spent bil­lions of dol­lars in re­cent years to keep the air­line go­ing.

Air In­dia - founded in the 1930s and known to gen­er­a­tions of In­di­ans for its Ma­hara­jah mas­cot - is sad­dled with a debt bur­den of $8.5 bil­lion and a bloated cost struc­ture. The gov­ern­ment has in­jected $3.6 bil­lion since 2012 to bail out the air­line. Once the na­tion’s largest car­rier, its mar­ket share in the boom­ing do­mes­tic mar­ket has slumped to 13 per­cent as pri­vate car­ri­ers such as In­terGlobe Avi­a­tion’s IndiGo and Jet Air­ways have grown.

Am­bi­tious time­line

Pre­vi­ous at­tempts to off­load the air­line have been un­suc­cess­ful. If Modi can pull this off, it will but­tress his cre­den­tials as a re­former brave enough to wade into some of the coun­try’s most in­tractable prob­lems. His of­fice has set a dead­line of early next year to get the sale process un­der­way, the of­fi­cials said, de­clin­ing to be named as they were not au­tho­rized to speak pub­licly about the plans.

The time­line is am­bi­tious and the process fraught, with opin­ion di­vided on the best way for­ward: should the gov­ern­ment re­tain a stake or exit com­pletely, and should it risk be­ing left with the un­prof­itable pieces while buy­ers pick off the bet­ter busi­nesses, of­fi­cials said. Al­ready, a la­bor union that rep­re­sents 2,500 of the air­line’s 40,000 em­ploy­ees has op­posed the idea of a sale even though it is ide­o­log­i­cally aligned to Modi’s Bharatiya Janata Party.

Of­fi­cials who have to make it hap­pen are grap­pling with the sheer scale of the ex­er­cise. Air In­dia has six sub­sidiaries - three of which are loss-mak­ing - with as­sets worth about $4.6 bil­lion. It has an es­ti­mated $1.24 bil­lion worth of real es­tate, in­clud­ing two ho­tels, where own­er­ship is split among var­i­ous gov­ern­ment en­ti­ties. No one has prop­erly val­ued the com­pany’s var­i­ous busi­nesses and as­sets be­fore, two of­fi­cials with direct knowl­edge of the process said. Ear­lier this month, about $30 million worth of art, in­clud­ing paint­ings by artist MF Hu­sain, went miss­ing from its Mum­bai of­fices, chair­man Ash­wani Lo­hani said. “The ex­er­cise is com­plex and there is no easy way out,” said Ji­ten­dra Bhar­gava, op­er­a­tional head of Air In­dia in 1997-2010.

“At this junc­ture, sell­ing even part of Air In­dia is far from cer­tain.” Lo­hani de­clined to com­ment on the sale process. The prime min­is­ter’s of­fice and the civil avi­a­tion min­istry also de­clined to com­ment.

Back to Tata?

A com­mit­tee of five se­nior fed­eral min­is­ters, led by Fi­nance Min­is­ter Arun Jait­ley, is ex­pected to meet this month and be­gin iron­ing out the finer de­tails of the plan. Be­sides de­cid­ing about the size of the stake sale, the panel will set the bid­ding norms. It will also take a call on the car­rier’s debt, de­merger and di­vest­ment of its three profit-mak­ing sub­sidiaries. Modi’s of­fice has said the gov­ern­ment has no busi­ness be­ing in hos­pi­tal­ity and travel, sug­gest­ing the prime min­is­ter wants to sell as much of Air In­dia as pos­si­ble, the of­fi­cials said. An­a­lysts say the gov­ern­ment may pre­fer to keep the air­line in In­dian hands. At least two po­ten­tial In­dian suit­ors - the Tata Sons con­glom­er­ate and IndiGo - have shown early in­ter­est.

In re­cent weeks, of­fi­cials in Modi’s of­fice and from the civil avi­a­tion min­istry met Ratan Tata, the pa­tri­arch of the $100 bil­lion-a-year Tata Sons, to gauge the com­pany’s in­ter­est in a deal, a close aide to Modi said. Tata would be an at­trac­tive buyer for the gov­ern­ment. The com­pany founded and op­er­ated Air In­dia be­fore it was na­tion­al­ized in 1953. “Seems like Tata will come for­ward and make the best of­fer,” the aide said, adding the gov­ern­ment would be keen to see that jobs are not lost. Tata, how­ever, al­ready has two other air­line joint ven­tures in In­dia, and it’s not clear what parts of Air In­dia it would be in­ter­ested in. A Tata spokes­woman de­clined to com­ment.

IndiGo said on Thurs­day it was in­ter­ested in the in­ter­na­tional op­er­a­tions and in Air In­dia Ex­press, a low-cost car­rier. Modi’s of­fice has told of­fi­cials to work out ex­actly how much each of Air In­dia’s sub­sidiaries are worth to make it eas­ier to break up the car­rier if needed, two of the of­fi­cials said. The gov­ern­ment is ex­pected to ap­point out­side con­sul­tants to help with the ex­er­cise. Anshuman Deb, avi­a­tion an­a­lyst at ICICI Se­cu­ri­ties, said split­ting the air­line will max­i­mize value for the gov­ern­ment. “Let us be re­al­is­tic. It’s very clear that a sin­gle buyer can­not buy an en­tire state-owned com­pany,” said a se­nior avi­a­tion min­istry of­fi­cial in­volved in the process.

JAKARTA: In­done­sians pur­chase clothes at a tra­di­tional mar­ket. — AFP

NEW DELHI: In this pho­to­graph re­leased by the In­dian Press In­for­ma­tion Bureau on July 4, 2017, In­dian Prime Min­is­ter Naren­dra Modi ges­tures as he leaves for a visit to Is­rael on an Air In­dia plane. — AFP

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