Has Air India transformed from a Kohinoor into an albatross around the government’s neck?

Did the government bungle the privatisation of Air India? With not a single individual or entity interested in acquiring the airline it’s hard to conclude otherwise. That’s the impression most people have but the government strenuously disagrees. So, today, let’s examine what conclusion the facts lead us toward. Frankly, I doubt if it will be different.

Now, I’m going to deliberately start at the end, not to be contradictory but because it’s revealing. It suggests the government is in a state of denial. Even 24 hours before the deadline, it was said offers would “pour in” at the last hour. When that did not happen, unnamed officials took to spreading the blame. Responsibility was pinned on the advisers, for their allegedly poor communication, on industry, for its lack of risk appetite, even on the shortage of time. The only entity the government did not blame for the fiasco was itself and the controversial conditions it set for the privatisation.

Yet this is, undoubtedly, where the problem began. First, the government chose to retain a 24% stake which would automatically give it a director on the purchased airline’s board. This, it seemed to potential purchasers, would deny them a free hand to run Air India as they would want. Not surprisingly, it put them off.

The second deterrent was the huge amount of debt the airline was lumbered with. At over ₹33,000 crore this was deemed to be unsustainable for an airline whose share of domestic traffic had fallen to just about 12% and of international traffic to under 17%. The result was Air India was hardly enticing.

However, if these onerous terms weren’t bad enough, there was yet more to discourage potential bidders. With 11,214 permanent employees Air India is said to be the most overstaffed airline in the world. But a further condition was that its workers could not be laid-off for at least a year after purchase and then, too, only with the government’s clearance. But would that be easily forthcoming? Understandably, most people thought not.

Equally disconcerting was the requirement that after purchase the airline would have to be run “at arm’s length from the other businesses of the buyer”. Why this was necessary was not explained but what was undeniable is that it would have impeded the development of economic and business synergies. More importantly, you can’t tell new owners how to run an airline they’ve just bought.

Against this background it was almost inevitable Air India would not sell. Now this means the government has to re-think the way it wants to privatise the airline. But if the second attempt is to be different it must begin with the admission that the first was riddled with ill-advised, uncalled-for and unnecessary conditions. They have to be dropped.

In fact, surely the solution is to offer all 100% for sale and to do so on simple terms without silly restrictions? Actually, why not do what Margaret Thatcher did when she was privatising British Gas and British Telecom: write-off the entire debt and ask buyers to bid in terms of what they believe the airline’s potential is henceforth worth?

Rational as this may seem, will the government act so radically with less than a year left before the next elections? I doubt it. In fact my apprehensions are rather different. From being the Kohinoor in the government’s disinvestment crown Air India could possibly metamorphose into the albatross around its neck!

The views expressed are personal