Why Air India failed to generate bids?
Recent Government bid to sell the Maharaja - Air India, a completely Government owned public airline failed completely. No one bid for the airline and in this article we will discuss the reasons why it happened and what the Government might try going forward.
India's own flagship brand, Air India, has been in news for quite a while. The company has not been able to generate successful bids as otherwise thought by the government. The reason could span from mounting debt pressure to government's stringent terms and conditions. Here, in this article, we will discuss why Air India failed to get traction from the investors and is there any alternative way to sell this loss- making brand except divestment.Why did Air India not get a single offer?
Even after extending the deadline for bids from May 3 to May 14, the government was not able to sell the airline because:
Of its decision to retain 24% stake in the airlines-The panel of ministry suggested that at least 24% of stake should remain in the hands of the government, but this decision was not swallowed well by the stakeholders because it would refrain the private players to fire anyone and power would still remain in the hand of the politicians.
Mounting debt pressure- the main reason why Air India was not able to generate potential buyer was because of its enormous debt pressure amounting to more than $7 billion- and the government mentioned that it would transfer $5 billion to the new owner through its divestment process, which was an unrealistic assumption.
Poor terms and condition- another reason why the government failed in its attempt was because of poor terms and conditions that was lay down by the government at the time of sale. The Indigo airlines clearly mentioned that though the company wants to revive this loss- making undertaking, but it is backing out because the company wishes to purchase the international operations- an option that the government did not lay down. Jet Airways, another major competitor opined that the current bid terms are irrelevant and doesn't make any sense. The added caveats like retention of 24% stake and the seat on board, deterred the private airlines to participate.
The government wanted to operate on an arms- length basis- The government's decision to bar the companies from merging Air India business into their own and its condition to operate on arm length basis (it means that both the parties are acting in their own interest and is not subject to any coercion from the other party) did not fetch any proposal from the client.
Bad rapport among the clients- the incidents like the airline lost the customer luggage clearly resulted in the loss of reputation.
Overstaffed- The company is overstaffed and is having more than 27,000 employees and is even in the process of hiring more employees. Of these 11,214 are declared as permanent which means they are covered under the labor law (government permission is required to fire them). This huge workforce is creating challenges every-day, especially the pilots, who go on strike, the moment government passes a harsh regulation. In such a scenario, it might be too expensive to buy the carrier, even if it is offered for free.
Government nays to the foreign buyers- There are several foreign buyers that are interested in buying the airline, yet the ruling party doesn't wish to sell them.Is there any alternative way to sell Air India except divestment?
Though the government is busy blaming everyone including the advisors and business in general for not wanting to own a risky asset, but rather than that the Modi government should lay business- friendly terms and conditions and accept the minor things to get rid of the loss- making unit.
