Who will buy the airline if govt permission is still required to get rid of staff? Ownership restrictions must also be relaxed
While it is reasonably certain the government will absorb a lot more of Air India’s debt than it did when the last privatisation bid failed, the question is whether this will be good enough to attract bidders. The likelihood that the government will completely exit the airline will undoubtedly help; while the government was planning to retain a 24% stake the last time around, this spooked investors since they were worried about government interference as long as it was a shareholder and had directors on the airline’s board. Given that there were no buyers for even a Jet Airways, which was much better-run than Air India, it is not certain Air India’s second attempt will fare much better than its first; the government, however, will do well to revisit many of the other restrictive clauses that put off investors. One clause, for instance, said that the airline had to be run on an arms-length basis from the other business of the buyer—if an airline was to buy Air India, this would mean the airlines couldn’t merge to extract operational synergies! Another said that Air India had to be run “on a going concern basis”. Why?
Nor is it clear why the government isn’t willing to take on all of Air India’s Rs 74,000 crore liabilities; so far, the government has taken over around Rs 30,000 crore of debt by putting this in an SPV and, indications are, it will take over another Rs 20,000 crore or so. Given Air India’s annual losses continue to balloon—FY19 losses rose 38% to touch Rs 7,365 crore—and aviation is no longer a capital-intensive business, the government needs to make the deal as sweet as possible for the buyer.
A potential deal-breaker, as in the past, could be Air India’s large and heavily unionised work force; it is so unionised that, despite the government merging Indian Airlines with Air India so long ago, the pilots agitated, a few years ago, on whether pilots of IA or AI should be allowed to fly certain planes. According to a news report in FE, the government is likely to, in keeping with disinvestment guidelines, make it clear that no workers can be retrenched for the first year after the sale. While the gullible will take this to mean that the new buyer is free to retrench workers after that, the law of the land requires permission to retrench workers if the unit has more than 100 workers; which buyer will take a chance at getting the permission later? The fact that the workers are a big problem is clear from the fact that, the last time around, the Air India Information Memorandum said that 37.6% of the 11,000+ permanent staff would retire over the next five years. Even then, government officials unofficially pointed to how the disinvestment guidelines allowed retrenchment after a year; but, if this is really true, why not say so explicitly or, better still, offer a VRS before the sale or take these employees on the government rolls till they retire? Another ticklish issue is the foreign airline cap of 49%. If a foreign airline can’t buy a majority stake in Air India—ironically, a foreign grocer, say, can buy 100%—will it want to buy it? The government’s rationale for this is that, were foreigners allowed to buy Indian airlines, they would become ‘foreign’, and so, the bilateral rights given to India would expire. It is not clear that this is an insurmountable issue since the bilaterals are given to the government, and it is up to it to assign them to airlines; several countries have airlines that are owned not just privately, but even by foreign airlines. But, if bilaterals are indeed the issue, the government needs to sort this out. While it is encouraging that civil aviation minister Hardeep Puri told Parliament that Air India would be shut down if it couldn’t be privatised, it is worth keeping in mind that of the 20 PSUs cleared for shutting down by the Cabinet, only two small ones have been shut.