Is this the toughest company in the world to sell?

From an airline that was the first in Asia to acquire a jet aircraft (a Boeing 707) in its fleet and which inspired the birth of Singapore Airlines (SIA), Air India today is struggling for resuscitation. The fact that the beleaguered airline company has become the unwanted poster child of neglect would surprise even Lee Kuan Yew (widely considered Singapore’s founding father and its former prime minister), who had conceptualised SIA along the lines of Air India, which was at the time considered the epitome of luxurious airline hospitality.That only two entities — Tata Sons and SpiceJet — put in their bids for acquiring Air India, India’s flag carrier by the deadline of mid-September, is probably indicative that what was once India’s international pride is now an unwanted, debt-ridden liability.What ails Air IndiaThe airline had an accumulated loss of over Rs 80,000 crore, till March FY21 — which includes a confirmed loss of Rs 70,820 till FY20 and a provisional loss of Rs 9,779 crore for the year ending March 31, 2021. medium86342515Then there’s a total debt and liabilities amounting to Rs 90,000 crore, which includes a debt component of Rs 38,366 crore — that too after Rs 22,064 crore of debt was transferred to Air India Assets Holding Limited (AIAHL), a Special Purpose Vehicle (SPV).However, more than the financial stress, it’s the culture that’s been fostered on the airline from outside — read, the government and politicians — as well as the one that’s bred from within which is the real albatross around the Maharaja’s apocryphal neck. A reflection of just how low the airline has fallen, is the disappearance of a painting by noted artist Jatin Das, titled ‘Flying Apsara’, which he made specially for Air India and which has somehow found its way to the open market.An enquiry conducted to determine how the painting ended up in the open market revealed that the airline had managed to ‘lose’ Rs 750 crore worth of paintings — with the most likely reason being retiring executives and officials helping themselves to the precious artwork and artefacts, some of which date back to the ninth century, as ‘retirement gifts’. medium86342734Then of course there are the freebies — including complementary air tickets and upgrades — doled out to government officials and ministers, not to mention politicians and MPs of all hues, along with their family members, that have eroded the culture of profitability.Sputtering enginesThis is the third serious attempt made by the Centre to get rid of Air India, almost seven decades after it was nationalised — a move that many feel was the start of the airline’s decay and ruin. The first serious bid was in 2001, when 40% of Air India’s and 26% of Indian Airlines’ equity was offered to the private sector. This came a cropper after the government of the day, headed by PM Atal Bihari Vajpayee, threw a last minute spanner in the works by ‘clarifying’ that any foreign airline desirous of bidding for Air India will need an Indian equity partner. That led to the likes of British Airways, Qantas, Delta and Air France — all of which had been shortlisted as potential suitors for Air India — to back off.Even the Tatas, which had tied up with SIA to bid for the airline, walked away after SIA said it “was surprised by the intensity of opposition to the privatisation of Air India” and that “in such an adverse climate”, it wasn’t “confident that it can play a useful and effective role”. However, political opposition wasn’t the only headache SIA was suffering from — it had also suffered massive financial losses due to damage caused to its aircraft at the Colombo international airport when LTTE terrorists bombed it in 2001.The plan to divest government control from Air India then went into cold storage during the UPA-1 regime as the Manmohan Singh-led government was crucially dependent on support from the Left parties, for whom privatisation is an unwelcome step.boxcontent medium86342604Timeline of Air India’s disinvestment efforts2000* The Ministry of Disinvestment offered 40% stake in AI and 26% stake in Indian Airlines to a strategic investor, to be later followed by offering 20% stake in AI and 25% in Indian Airlines to employees, public and financial institutions* Bids were received from Tata Sons with SIA, Ashok Leyland-Hinduja Group with Lufthansa, LN Mittal-Kotak Mahindra with British Airways and Qantas, SkyTeam Alliance that included Delta and Air France, the Indian Pilots’ Guild led by S P Verma and Videocon International which bid for Indian Airlines only in a consortium with two Asian airlines* Centre insisted on foreign airlines partnering with Indian companies, following which most airlines withdrew2001* Tata-SIA also pulled out of the bid, citing political opposition and SIA suffering financial losses due to aircraft damaged in the LTTE Colombo airport bomb attack2003* Naresh Chandra committee report bats for privatising Air India and Indian Airlines but faces strong opposition2004* Privatisation plan shelved as Left parties are opposed and UPA-1 government depends on them for support2007* Air India merged with Indian Airlines to form National Aviation Company of India Ltd, later renamed Air India in 20102017* Air India privatisation approved by Centre2018* Expression of Interest (EoI) in selling 76% stake in Air India, along with low-cost airline Air India Express and 50% stake in AISATS, a ground handling joint venture with Singapore Airport Terminal Services (SATS) issued in March* Conditions include absorbing Rs 33,392 crore (US$ 4.7 billion) debt with bids to be submitted by mid-May. No bid received2020* Government again lists Air India for divestment, in January, offering 100% stake in both Air India and Air India Express plus 50% in AISATS. However, as before, real estate assets to be excluded from divestment* Original deadline for submitting bids, March 17, 2020, extended several times, with final deadline of September 15, 2021The biggest snub to the airline’s privatisation however, came during the first tenure of the Narendra Modi government in 2018, when it issued an Expression of Interest (EoI) to sell 76% stake in Air India, along with low-cost airline Air India Express and a 50% stake in AISATS, a ground handling joint venture with Singapore Airport Terminal Services (SATS).To its utter surprise and humiliation, it didn’t receive a single bid for what it thought would sell like hot-cakes. The reasons touted were many, chief among them being the government’s insistence that any new prospective owner of the airline would have to assume responsibility for its (till then) Rs 33,392 crore debt. There were other riders too, which made the divestment unappetising, such as the real estate component of Air India, which is worth several thousand crore (the last estimate, in 2012, pegged the total value of its real estate assets at Rs 5,000 crore), not being part of the sale, a condition that’s been persisted with for the latest bids received too. medium86342715Moreover, even though the government would have owned a minority 24% stake post-divestment, having it as an equity partner probably wasn’t appealing enough for any prospective bidder as it would have prevented it from merging Air India with any of its existing businesses. Additionally, the winning bidder not only had to stay invested for a minimum of three years but also had to give an undertaking that it will list the airline.Added to that was what may have seemed like a rush job — the EoI was issued in March 2018, with the Centre setting a deadline of mid-May 2018 for putting in the bids — just a year ahead of the 2019 Lok Sabha polls, which tend to create their own nebula of political uncertainty.Final countdown?This is the third attempt by the government to sell Air India and the deal has been sweetened substantially for the potential winner. For one, the government is divesting complete ownership control of the airline by offering 100% of Air India and Air India Express’s equity, along with 50% equity in AISATS. Secondly, the new owner will only have to shoulder Rs 23,286.5 crore of the total debt, with the rest being transferred to the SPV, AIAHL.Considering however that the entire process, which commenced in January 2020 when the EoI was issued, has taken more than 18 months with just two parties expressing interest, shows that this ‘groom’ doesn’t quite attract attention — even if it comes with a ‘dowry’ of 4,400 domestic and 1,800 international landing and parking slots at domestic airports, as well as 900 slots at airports overseas.Whoever wins the bid will also have to contend with a haemorrhaging market share, with Air India’s domestic market share down from 20% in 2010 to 12.8% now and which, over the next three to four years, could dip even below 10% as 500 aircraft are scheduled for delivery to India’s private sector airlines. medium86342656How the rot set inWhile political interference and bureaucracy ate away the foundations of the airline over the years since its nationalisation, the merger with Indian Airlines was probably the last straw that broke the proverbial camel’s back. According to former Air India’s managing director Ashwani Lohani, the merger not only led to a bloated workforce but also a clash of work culture due to difference in pay structure and different aircraft inventory that led to an increase in costs.Added to that was overspending on not just staff — many of whom were entitled to perks unheard of in other airlines, such as subsidised housing in posh metro localities and holiday homes at subsidised rates for both serving and retired employees — but also on aircraft.The most notable instance of overspending came in 2004, when then Civil Aviation Minister Praful Patel upped the purchase order from 28 aircraft to 68, which were finally ordered in December 2005. Alongside, Indian Airlines placed a purchase order for 43 Airbus airplanes in February 2006, which led to the Comptroller and Auditor General (CAG) to term them a “recipe for disaster.”The CAG in fact has come down heavily on both the airline and the Ministry of Civil Aviation, which considers the airline its personal fiefdom, for several financial irregularities. In its 2016 report, the CAG faulted both for a poor job in implementing the turnaround plan sanctioned by the UPA-2 government in 2012. The plan had also involved an equity infusion of Rs 42,182 crore in the beleaguered airline over a 20-year period from 2011-12 to 2031-32.In its 2017 report, the auditor slammed Air India for selling five Boeing 777-200 long-range aircraft to Etihad below cost price and in the process, incurring a loss of Rs 671 crore.Tackling the workforcePerhaps the biggest fear for any bidder for Air India will be dealing with its heavily unionised, 14,000-plus workforce, with a total wage bill in excess of Rs 3,000 crore, constituting 11% of its revenue. This, however, compares favourably with the wage cost as a percentage of revenues of other airlines, both foreign and domestic. medium86342776In terms of employee per aircraft, Air India’s figure of 120 is higher than that of domestic market leader IndiGo, though it’s lower than that of SpiceJet and SIA. medium86342679Added to that are the 11,958 employees of AISATS where the new owner will be a 50% partner — the other 50% being with SATS — and where the wage bill is a whopping 56% of the total revenues. In 2018-19 for instance, nearly Rs 410 crore was the wage bill component of the unit’s nearly Rs 732 crore revenue. medium86342685The sale of Air India, however, is imperative for the government in order to meet its divestment target of Rs 1.75 lakh crore for 2021-22 — and while it earlier expected to net around Rs 15,000 crore from the airline’s sale, the final bid may be lower due to Air India’s unique problems of mounting losses and debts.Untitled Carousel 86343958