Challenges To Modi’s Divestment Drive Exposed As Air India Sale Finds No Bidders

The challenges that are faced by India in setting right the government funded and debt-ridden airline Air India through sell off became evident after the government did not manage to find a single buyer by the end of the deadline on Thursday.

It also indicates the challenges for the government selling stake in government-held companies.

Plans to sell of 67per cent of government share in Air India and help reduce its $5.1 billion debt was announced by Indian Prime Minister Narendra Modi’s government in March.

It had received no bids, tweeted the Ministry of Civil Aviation said on Thursday evening. It added that the government would make appropriate decision on the next move on the stake sale.

The time period for bidding was extended and easing of some terms and conditions of the bidding process was relaxed by the Indian government earlier this month. However, even that was not enough to attract buyers for the airline which has a number of attractive routes but also possesses amongst the highest employees-per-aircraft ratios in the industry.

The government would now need to step up elsewhere to meet its divestment target, said Renu Kohli, a Delhi-based independent economist/.

“Relative to what we are seeing this year … uncertainty in the financial markets, aggravated distress among banks and rising interest rates and oil prices, it does not seem like a very supportive time for people to come and buy such an asset,” Kohli said.

The plans of the government included raising of a record 1 trillion rupees ($15 billion) through sale of government assets in the current fiscal year of 2018-19 and one of the major contributor to that plan was the divestment of Air India.

some of India’s most lucrative international and domestic landing and parking slots that are key for airlines lies with Air India which is also known for its Maharaja mascot.

Any bidder for the airline would have gained from the complete control of the airline’s more than 2,500 international slots and over 3,700 domestic slots, but also bear the burden of the more than 27,000 employees with an average 40 percent of them being of a permanent nature.

The disclosure of the initial terms and conditions of the divestment had seen India’s IndiGo Airlines and Jet Airways opting out of the bidding process even though they had initially showed significant interest in the purchase.

Reports had also cited sources saying that the terms were considered to be too onerous foe the steel-to-autos conglomerate Tata Group which was earlier considered to be a possible bidder for the airline up for sale. However, it also reportedly backed away.

Vistara with Singapore Airlines are already operated by Tata in India. It was keeping an “open mind” about Air India, Singapore Airlines had said in the past. However, sources said that the company wanted to focus more on the growth of Vistara instead of bidding for another airliner.

“Possibly the current condition is not conducive as the domestic airline industry at large is currently under pressure, driven mainly by the dual impact of rising fuel costs globally and weakening currency,” said Arindam Som, analyst at India Ratings, a Fitch Group company.

(Adapted from Reuters.com)

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Categories: Economy & Finance, Regulations & Legal, Strategy, Sustainability, Uncategorized

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