'Maharaja for Sale'

A fantastic caption 'Maharaja for Sale' appeared a few weeks back in all the leading news papers.
Its about Finance Ministry's approval to sell 'Air India'. The decision to dispose the airline was
attributed to mounting loss..... Well, the Government didn't think that they are selling Nation's
pride also. With common sense one can understand that any business will have ups and downs.
There are many private companies which are running successfully for over 100 years. How are
they able to survive and sustain up till now. Even Private Airlines in our Country are able to see
thru difficult periods and keep themselves floating.

Why Air India ( owned by Government of India) is struggling to fly even after pumping in
funds? Is the cockpit eating the money or the tail.....? A classic example of Financial
Mismanagement and a tremendous display of inefficient top management. Mounting loss is
nothing but corruption at its very best. Is the Government not aware that financial management is
of paramount importance for a business success?

There are hundreds of big companies who rank in the elite list of tax defaulters. The Government
protects them with an excuse that if they are rattled it will collapse our economy. What a
shameful act. The current Government is blindly copying Western world policies and its
culture. Appears to be an onset of senile dementia........

Long Back the TATA's had offered to own and operate Air India but the Government turned
down the offer and preferred to run the airlines themselves. Initially when there wasn't much
competition, the Maharaja had his days of glory...even Indian Airlines (Domestic) had its fair
share of earnings but as competition opened up and Private Airlines started operations...the
Maharaja which was being run by bureaucrats who had limited activities of their brain did not
foresee the changing scenario and continued with the same old and outdated policies. Besides the
Government's interference quite so often in policy matters and the free ride for Air India staffers
as also the Government ensured that Air India and Indian Airlines remained Government sector
career for the government. At one point of time the rules in Government offices were clear - LTC
reimbursement only for undertaking travels in Government career ie. Indian Airlines/Air India.
When the Courts are coming down harshly on Businessmen for fraudulent practice (
Satyam/Sahara/Stock Exchange scam: Harshad Mehta...Rajan Pillai of Britannia was put behind
bars and died there ), why no bureaucrat or the aviation minister is not given the honor of tasting
the meal behind bars?

Maharaja on Sale: Why would anyone buy debt-ridden Air India?

Will the beleaguered state-run Air India soon get a new lifeline? In a recent interview, Finance
Minister Arun Jaitley said that the disinvestment of the loss-making national carrier is on the
cards. According to him, private carriers, which already have 86-87 per cent market share, could
also handle 100 per cent flying. On the other hand, while Air India's market share is just around
14 per cent, its debt burden has piled up to reach Rs 50,000 crore. Of the total debt, Rs 20,000-
25,000 crore is related to aircraft valuation. As for settling the remaining amount, Air India has
some lucrative assets, the Minister noted.
Following Jaitley's comments, the National Institution for Transforming India (NITI) Aayog, the
government think tank, also rooted for its disinvestment. But a few days later, Civil Aviation
Minister P. Ashok Gajapathi Raju admitted that finding a scapegoat - in the form of a strategic
investor - might not be easy. Even as the government machinery is pulling out all the stops to
find a suitor, the sell-off could be tricky.
Who May Buy Air India and Why
As the airline is wholly owned by the Indian government, any investor - corporate or institutional
- could only be interested in buying at least 51 per cent stake to thwart the chances of the
government's interference in the future. Given that the carrier works like a private air charter
service for ministers and several bureaucrats, to say nothing of the management apathy, no
investor would ever want the old order to interfere with the airline's future course.

The likely buyer could be a foreign airline interested in the Indian aviation market or an Indian
carrier looking for inorganic growth. The third possibility, a distant one, is some deep-pocketed
corporate planning to venture into aviation. The biggest pull factor for any investor is going to be
the prized assets that the carrier owns, including the marquee assets such as the Air India
Building at Nariman Point in Mumbai, another building at the old airport in Kalina, also in
Mumbai, and a plot in Delhi's Connaught Place. For the financial year ending March 31, 2015,
its fixed assets stood at Rs 37,375 crore.
The last time a foreign airline showed interest in Indian aviation was in March this year when
Qatar Airways said it had plans to start a fully owned airline in the country. However, Qatar is
now passing through an economic and diplomatic crisis as several Arab countries have severed
ties with it for its alleged involvement in terror funding. So, ruling out Qatar Airways from this
list is a no-brainer.
That an Indian carrier would take over Air India does not seem plausible either, and the reasons
are many. First, the carrier's legacy issues and operational baggage make it unattractive. For
instance, look at the employee cost. At the end of 2015/16, Air India had 12,880 employees with
an expenditure of Rs2,345.5 crore, which means a cost of Rs 18 lakh per employee, per annum.
Compare that with Jet Airways' Rs13.8 lakh and IndiGo's Rs14.4 lakh, and it is clear that Air
India is paying way too much.
Then there is a whole bunch of labour unions, including the Air India Employees Union, Air
Corporation Employees Union, Indian Pilots' Guild and Indian Commercial Pilots' Association
who put employees' interests above the airline's performance. Any new owner will find it
daunting to deal with unions or meddle with the existing employee cost structure. In fact, the
merger of Air India with Indian Airlines in 2007 and the subsequent brawl between the employee
unions and the management had paved the path for the current mess.
It is also ironic that in spite of engaging the best industry talent, the airline is consistently losing
market share at a time when passenger traffic is growing at around 20 per cent. The company's
market share has slipped from 20.4 per cent in March 2014 to 12.9 per cent in April 2017.
In India, the most profitable airlines are low-cost carriers such as IndiGo, SpiceJet and GoAir.
These airlines have learnt the LCC model well and stuck to it despite strong temptations to get
into the full-service space. In contrast, Air India has a mix of everything - full-service, low-cost
and regional operations as well as maintenance, repair and overhaul (MRO). The complexity of
running such a huge organisation could be well beyond the Indian carriers.
Despite all odds, the government is hoping to find a buyer. Meanwhile, the airline sits on a debt
pile of Rs46,570 crore (as on September 30, 2016) and has accumulated losses of Rs47,440 crore
between 2007/08 and 2015/16. Understandably, that is going to be the biggest deterrent for
anyone. Without reducing its debt - either through banks taking a haircut or the government
taking a hit - prospective buyers are unlikely to show up.
However, the government has already spent a fortune to revive Air India. In 2011, it had
approved a Rs30,231 crore turnaround plan (TAP) to pull the airline out of mounting losses and
debt burden. So far, a total of Rs24,745.21 crore has been spent out of that kitty.
Is Disinvestment the Best Way Forward?
It is the third serious attempt by the Indian government to sell off Air India. In 1999, when
Jaitley was the Disinvestment Minister in the Atal Bihari Vajpayee government, he came up with
a similar proposal, but it did not materialise. In fact, the repeated efforts by several governments
to revive the airline had never yielded favourable results. That the airline could post operational
profits of Rs 105 crore in 2015/16 was considered its biggest achievement during the past
decade. But the euphoria did not last long. The luxury of letting the government run the show at
Air India - and burn taxpayers' money - is, indeed, over. It is now time to choose short-term pain
for long-term gains.

Air India privatisation blueprint: The Great Maharajah makeover

"We want Air India to be a global airlines and are moving as quickly as we can" ,said
Jayant Sinha, MoS Civil Aviation.

In its boldest move yet the Narendra Modi government has decided to privatise the 52,000 cr
debt laden national carrier the Air India. A decision that will raise the hackles of trade unions
and Left parties who have managed to block disinvestment in the airline sector for over 25 years.
But now the government has swung into action with its think tank Niti Aayog mapping the
blueprint for the sale of Maharajah. It took Niti Aayog just 15 days to draft the Air India
privatisation report.
"We did recommendation on Air India in just 15 days time, it was very clear from its analysis
and statistics of its financial performance, it was very clear that it will do better if you structure it
with a private partner," revealed Amitabh Kant, Niti Aayog CEO to India Today.
Niti Aayog has made a strong argument to put national carrier on the sale bloc and divert the
funds used to subsidise it for education and health sector needs in its fourth report to the PMO.
"Our belief is that government is very good at somethings and pathetic at other things. It should
get out of areas where its very bad and it should take out resources which are not in productive
area should be taken out. There is no rationale of government to put money into an airline which
is just taking 14 per cent of market share. Private sector has done pretty well and our analysis
showed that resources required are huge and they need to be put in education and health," asks
Amitabh Kant, Niti Aayog CEO.
As a first step, the finance minister has shared a report from Niti Aayog on Air India with the
aviation ministry. Speaking to India Today Jayant Sinha, Junior Minister of Civil Aviation for
the first time has confirmed that the assessment of Air India's assets is already underway.
"There are no 'two opinions' in the government about the privatisation of Air India. Cabinet will
decide on the process but we have already come towards the end of the assessment of the assets
owned by the airline," said Jayant Sinha, MoS Civil Aviation.
BURDEN OF DEBT
But for an airline with bureaucratic baggage, it will be a difficult task. First challenge will be to
deal with massive debt of 52,000 crore. While top level sources have told India Today that the
government is willing to write-off the debt for the potential buyer, the question is if that
option is lucrative enough to lure in enough bids for the sell-off. For the moment though, the
government is not ruling out opening doors to even foreign airlines to compete in the bidding
process.
"We want Air India to be a global airlines and are moving as quickly as we can," said Jayant
Sinha, MoS Civil Aviation.
But is the timing of announcement on the third anniversary of the Modi Government
appropriate? While it has clocked loss of 3643 crore in last fiscal, there has been trimming of
corners with staff reduction and optimisation of resources already. In March itself AI board had
approved a proposal to induct 7 Boeing 787-9 aircraft to improve international connectivity to
Canada, US and Australia. Currently the national carrier has 103 planes out of which 42 are
Boeing and 61 are Airbus carrier.
"We won't put expansion of Air India on hold, all steps make commercial sense. If anyone
wants to buy the airline, it would to take these steps," said Jayant Sinha, MoS Civil Aviation.
Air India's national grid is backbone of the government's UDAN scheme for regional
connectivity.
But will the Maharajah be able to keep air fare under control or will privatisation have its own
set of compulsions?
"We will keep fare under control, all airlines are in competitive fare market," assured Jayant
Sinha, MoS Civil Aviation.
BIG CHALLENGE AHEAD
The process of Air India assets sale is another big challenge. Air India has 4 subsidiaries of Air
India Express Limited (AIEL), Air India Engineering Services Limited (AIESL), Air India
Transport Services Limited (AISTL) and Alliance Air. Each subsidiary has different valuation
with experts estimating Air India Express Limited valuation at 8,000 crore, AIESL at 3,000 crore
and AITSL valued at roughly 2,000 crore. It also has a joint venture with AISATS which
provides ground handling for domestic airports, with rough estimated worth at 1000 crore.
"Its a very value rich company there will be many buyers if there aren't the government needs to
structure it in the right manner", said Amitabh Kant, CEO, Niti Aayog
Interestingly during Vajpayee tenure there was a push to sell stake of Air India by then
divestment minister Arun Shourie but the bidding war was stuck in political and corporate
quagmire. But will Modi government learn from the past to give Air India private wings this
time?
"Our government is transparent and it will happen in this case as well, our government is for the
people and we are ready to make any changes to make Air India more competitive", said Jayant
Sinha, MoS Civil Aviation
Top level sources have told India today that privatization process will be completed in the next
12 months

'Maharaja' on sale: Union Cabinet approves Air India's disinvestment

The Union Cabinet on Wednesday gave an in-principle approval for disinvestment of Air India.

Finance Minister Arun Jaitley, while addressing a press conference, said that on the request of
the Civil Aviation Ministry a group under his vigil will be constituted to decide on the modalities
of the matter.

"There was a proposal of civil aviation ministry of disinvestment of Air India, this has been
given theoretical approval or an in-principal approval," said Jaitley.
"In its proposal the civil aviation ministry had urged to constitute a group under
the finance minister which can decide on the concerning modalities of the same, the cabinet has
accepted that. How much of it will be disinvested? Or the issues related to its debts, hotels will
be later on decided by the constituted group," he added.

This step comes in the view of Ministry of civil aviation plying ways to revive Air India, which
is surviving on Rs 30,000 crore bailout package extended by the previousUPA regime.

Air India constitutes of the largest fleet of 140 planes in India.

According to reports, the cabinet chose between two options suggested in a 30-page note
prepared by the Department of Investment and Public Asset Management (DIPAM) after
discussions in a Committee of Secretaries, headed by the cabinet secretary.

(This story has not been edited by Business Standard staff and is auto-generated from a
syndicated feed.)

Air India stake sale: How to sell the Maharaja

July 3, 2017, 11:24 PM IST Economic Times in ET Commentary | Business, India | ET

By V Ranganathan

At last, the government has decided to bite the bullet and sell Air India (AI). Now, the question
is how: strategic sale, or sale through the stock market? Ratan Tata, possibly in alliance with
Singapore Airlines, has shown interest, as have others like IndiGo and Qatar Airlines.

Strategic sale is a political landmine, which could invite charges of favouritism or, worse,
corruption. Strategic investors will always pick up the stakes in the secondary market. But that
is not the governments worry. The only downside of a market sale is that the Indian stock
market may not be large enough to absorb this big a sale and fetch a good price.

So, should AIs assets be stripped and each component sold? Or to sell it as a going concern? Or
to sell the profit-making subsidiaries AI Express (low-cost carrier), AI Transport (cargo) and
AI SATS (airport services) land and office buildings separately, and the remaining as a going
concern?

The difference between the first and third options is that in the first, landing slots can also be
auctioned independently. In the third option, it will be integral with the remaining portion of the
airline. A detailed cost-benefit analysis has to be done to decide which is the best alternative.
Also read: Air India stake sale: How to acquire the Maharaja

Air Lanka was sold to Emirates as a total airline, which was rechristened as Sri Lankan. It was
considered that the government could have got more if the landing slots were sold separately.

Severance pay and other obligations should be settled. The less GoI insists on the buyer to take
on the existing staff, pilots included, the better price it can get. This is also the right time for GoI
to bring a law that dilutes the job security of public sector employees and GoIs financial
obligations to them in the event of privatisation.

Then comes the matter of how much to divest. The more the government holds a share in AI, the
less will be the price it realises. At the same time, it has to retain its fiduciary responsibility. The
British government did this, till recently, by holding one golden share of the then-British
Airports Authority (BAA, now Heathrow Airport Holdings), thereby holding overriding powers
but without any dividends.

This method could be ideal for AIs privatisation too. Should foreign airlines be allowed to hold
majority shares? The present rule allows, without breaching the existing cap, up to 100% with
other foreign players like sovereign wealth funds. This aspect needs a dispassionate and hard-
nosed study.

Then, should AI be sold all in one go? Or should it be progressively divested? Either way, the
government will be on the horns of a dilemma, as China had experienced in its selling of shares
of petro company Sinopec in the market.
The Chinese government could not divest too much, as it would depress the price. And divesting
slowly meant giving a signal to the market of continued government ownership, which meant
prices going down after the sale.

Another possibility is the adoption of the Maruti-Suzuki model: parking some of its stakes in
public sector banks and realising the value later when the prices move up. However, this option
is open to the criticism that public sector banks are not much better than our public sector
undertakings (PSUs). Selling these stakes in PSBs would still remain a task for the government
to avail the benefits of a price appreciation.

Unlike a private-private sale, when the seller is not concerned with the events post-sale, in a
government of India-private sale, the government has to be mindful of the post-sale
consequences.

This, again, creates a dilemma for GoI. A pro-monopoly structure post-privatisation will fetch a
higher price and make the privatisation look successful in the eyes of the media and the public.
But a pro-competitive structure post-privatisation will benefit the people in terms of a vibrant
competition.

In India, despite the presence of so-called low-cost carriers, prices have not come down to the
extent that they are in the Far East Asian market. We still do not have vibrant competition.
Incumbents have been sabotaging the entry of powerful competitive forces like Air Asia, which
has significantly brought down prices by all carriers in the segments it operates.

The airline and mobile telecom industries are similar in a way in that both are high fixed cost and
near-zero variable cost industries. Thus, during the period of excess capacity, costs can go down
to self annihilating levels. Their only saving grace is to wait for the good times when demand
picks up and excess capacity vanishes, a feature of the airline industry as it follows the
business cycle.
The writer is a former professor, IIM-Bangalore