Not a single bidder for stake in Air India

New Delhi: In a shock to the government and a huge setback to the privatisation process for national carrier Air India, no initial bids (Expressions of Interest) were received from bidders for acquisition of stake in Air India. Following the failure on Thursday evening when the deadline expired for submission of EoIs, the government is now likely to re-work terms of proposed sale of stake in the “Preliminary Information Memorandum (PIM)” issued in March this year, to make the Air India more attractive to potential buyers. A new PIM could now be floated after a few weeks following the failure of the ongoing process.  The government had initially estimated that the winning bidder would be identified by the end of June and that the legal closure of the transaction would take place by the end of this year. But now all timelines have gone awry, with this setback, giving rise to speculation that Air India may not be sold after all in the tenure of the current BJP government.

The reasons for the debacle are now expected to be immediately examined by an “Evaluation Committee”— headed by senior official of the Department of Investment and Public Assets Management (DIPAM) — which will submit its recommendations. These recommendations will then be placed before the Core Group on Disinvestment headed by the Cabinet Secretary. The Core Group’s recommendations in turn will be placed before the “Alternative Mechanism” (Group of Ministers) and the government hopes, this will happen within two weeks. Private firm Ernst and Young was appointed the “Transaction Adviser” (TA) for the process. The feedback from the TA on what discouraged potential bidders is also likely to be placed before the government.

“No bids were received. We were looking forward to better participation (in the EoI) process . It did not meet expectations of participation. I do not want to conjecture on why this happened,” admitted civil aviation secretary R.N. Choubey. The government is expected to now examine in detail why the EoI process was not found attractive by bidders despite the government offering 76 per cent stake in Air India and complete management control to the winning bidder. The government currently owns 100 per cent stake in Air India.

As per the current process, which has now ended in failure, Rs 33,000 crore of Air India’s debts were expected to be retained by the carrier while upwards of Rs 20,000 crore of debt was estimated to be transferred to a Special Purpose Vehicle.

But now, if the government wants to make the terms of sale more attractive, it may have to further lighten the debt burden on Air India and transfer more debt to the SPV. The government has also taken measures to protect the workforce of the airline financially, but probably this could have also been viewed unfavourably by potential bidders.

The government had also made it clear that “no more than 49% of the 76% (stake) offered for disinvestment (in Air India) can be directly or indirectly owned by foreign entities” and that “the majority ownership and control of the consortium should be with resident Indian Citizens”. It remains to be seen whether the government will do a re-think on this.

Also, the government may also examine whether to offer more stake in Air India beyond 76 percent stake as speculation is rife that potential bidders may prefer picking up the entire 100 percent stake rather than have the government continuing to play a role in Air India with 24 percent stake. Also, with elections next year, potential bidders could be nervous about what would happen in case there is a change in government at the Centre.