While the Request for Proposal (RFP) should bring in more insights, the government’s responses to queries from prospective buyers of Air India (AI) suggest it is unlikely to give them as free a hand as they would like in the running of the bankrupt airline.
While the Request for Proposal (RFP) should bring in more insights, the government’s responses to queries from prospective buyers of Air India (AI) suggest it is unlikely to give them as free a hand as they would like in the running of the bankrupt airline. There can be no other reason for hanging on to a 24% stake when buyers are willing to take all 100%. The government might claim it will be a minority shareholder and will not interfere in the running of the airline, but most promoters are uncomfortable working with it.
Ideally, the government should exit the airline altogether because wanting to stay on suggests it would like to have a say in the operations. It is true the government will exit at some point, probably post the IPO, but a lot of damage could be done by then. The big problems with AI are the huge debt and the bloated workforce. A prospective promoter may be willing to take on the debt he needs to, onerous as it is. However, few would have the stomach to retain the entire team of employees, most of who are unionised.
The government has said all details on safeguarding the interests of employees would be spelt out in the RFP, but ahead of the general elections in 2019, it is hard to see the government allowing the new promoters to let go of people. However, unless the workforce is pruned significantly—with the right people being fired—it will be hard to revive the airline.
There have been reports the government will agree to a phased retrenchment over three or four years, but there is no official confirmation. Such promises are also hazardous since there could be an entirely new team in New Delhi a year down the line, or the government can change its mind. It doesn’t help that the government will remain a minority partner in the airline all this while; and even if the new government doesn’t change the terms, there are other ways to persuade companies to fall in line.
While the government has clarified the new owners can look to extract operational synergies across areas—among others, HR policies, operations, sales & marketing, revenue management, procurement and contracting—it has also said AI must be run at an arm’s-length. A prospective airline buyer would prefer either an outright merger of the two airlines or certainly want them working closely. Unless the cost savings come through, it would be hard to deleverage the carrier.
While AI’s bilateral agreements and the presence on prime routes, both in India and overseas, are of immense value—it has a 12% share in the domestic market and 17% in the to/from India market—the new owners must be given a chance to leverage this to turn the airline around. That could be tough if the government is looking over their shoulders.