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Air India Makes Some Progress Towards Privatization
It is now expected that the official expression of interest for privatizing Air India should be done by the end of November, after a delay of a month in the drawn-out process for privatization. The committee overseeing the privatization was supposed to have it ready by the end of October but a mid-October meeting between Air India management and union representatives seems to have stirred up some trouble.
On October 14, Air India officials met with a few dozen union representatives to discuss how divestment and eventual privatization will impact employees: a key sticking point in the privatization process. Air India is known for bloated staffing with low productivity. In order to make the airline more attractive to buyers, management has outlined the impact privatization will have on employees and disseminated it to union leaders.
Union leaders aren’t at liberty to discuss the exact terms but from what has been publicly released by management the impacts are extensive. The employees of the airline will only be offered job security for a year after the airline’s sale. In addition, lifelong medical insurance for employees and families and free flight benefits are subject to change.
Debt and Ownership
Air India’s debt also continues to be a huge detractor for buyers as well. The Indian government is now considering moving roughly 30 percent more of Air India’s debt to a special purpose vehicle than originally planned in order to make the sale more appealing.
On top of that, special exemptions must be made for foreign bidders due to foreign direct investment rules that would limit the maximum a foreign entity could own in the airline to 49 percent unless international partners are interested in cooperating with local firms in a joint venture similar to the ownership structure of Vistara, a joint venture between Singapore Airlines and Tata.
This is the second attempt since last year to sell off the airline and the government seems to be taking it more seriously this time around. It’s doing a better job dealing with employees who have a right to be concerned about their livelihoods and is addressing Air India’s huge debt burden. In addition, the government this time around is open to selling up to 100 percent of the airline as compared to last year when it was only ready to divest around three-quarters of it.
Any ownership stake in Air India is scaring buyers. However, even a 100 percent divestment may still leave many skeptics. A former Tata director who oversaw two privatizations says the success of this venture with Air India depends on the ability for the private entity to push back on government interference in the new organization.
Unless things are delayed longer, there should finally be some movement in the privatization process by the end of this month. The government is trying to deal with labor issues and debt all while improving yields and load factors to try to position the airline as a premium asset, which given all of Air India’s past failings will be an extremely hard sell.
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