Saturday, June 2, 2018

What next for the Maharaja?

THE Centre will review plans to sell Air India after the most high-profile privatization offer ended in a fiasco with no buyers showing interest in the unprofitable national carrier. The NDA government will make changes to the plan, if needed, Economic Affairs Secretary Subhash Chandra Garg said. As the deadline to show preliminary interest ended on May 31, no bidder came forward to propose purchasing 76 percent of Air India Ltd., which was offered offered...
along with $5 billion debt, Aviation Secretary R.N. Choubey told reporters in New Delhi. The process for the next steps will start in two weeks, he said.
“We were certainly looking forward to better participation than this,” he said.
In the last two decades, Air India lost out to carriers such as Singapore Airlines Ltd. and Emirates that expanded flights to India, the world’s fastest-growing major aviation market. The lack of interest also means the government is stuck with an enterprise that has survived on taxpayer money for the past decade.
Air India’s fleet includes more than 100 Boeing Co. and Airbus SE aircraft that make more than 2,300 local flights weekly to 54 airports. It has 2,543 landing slots at airports including New York, London, Paris and Tokyo.
The government had tried to sell the carrier previously as well and those efforts were stopped after political opposition. In 2001, Singapore Air dropped its bid for a stake in Air India, citing political opposition as one of the reasons. The Southeast Asian carrier n carrier was seeking a 40 percent stake with India’s Tata Group.
Apart from the airline’s heavy debt and high losses, potential bidders had to grapple with uncertainty about the government’s demands on employee retention, or any other downside from its decision to retain a 24 percent stake.
Besides, there were peculiar clauses such as one that required buyers to retain the Air India brand for a specified period. The list of queries submitted by potential bidders gives a fair indication of the factors that most irked them.
Crude oil prices in the international market have risen 14 percent in the past two months, taking the total increase in the past year to around 50 percent.
With no signs of a correction anytime soon, airline stocks have fallen.
According to reports, the higher costs are resulting in a crunch. Needless to say, higher tariffs will hit load factors or capacity utilization. In such a backdrop, the last thing on anyone’s mind would be to add significant capacity by making a large acquisition. To that extent, the sale was ill-timed.
With airline valuations having corrected further, bidders need to factor in far higher levels of operational improvement to justify even a nominal bid for the asset.
Meanwhile, Mahindra Group Chairman Anand Mahindra on June 1 said that Air India’s stake sale was a matter of "national pride" now, and that it was high time the crisis was turned into an opportunity. The business magnate posted the comment on his Twitter handle soon after the government said it has not received any bids for the national carrier.
He said the government should make a commitment to sell the national carrier, but only after turning its business around.
A government official, with the potential and passion of India's 'Metro Man' Elattuvalapil Sreedharan should be appointed the airline’s chairman and chief executive officer.
The newly-appointed chairman should be given full autonomy, with only a turnaround target to work with.
The new chairman should be "completely insulated" from political pressure.
The chairman should be extended full moral support to implement any kind of tough measures he sees fit.

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