Despite the optimism exuded by the government, one needs to keep fingers crossed over whether the ailing Maharaja, groaning under a cumulative loss of Rs 70,000 crore, will be able to find a suitor this time around. The NDA government did make a strong disinvestment pitch last year when it offered to sell 76% stake in debt-ridden Air India but the plan failed spectacularly with not even a single bidder coming forward to become a strategic partner. A fresh attempt is now being made to sweeten the deal by tweaking the terms of the disinvestment and putting 95% of the stake up for sale while retaining the remaining 5% for employee stock option. It remains to be seen whether the new offer will find traction, given the general sense of gloom prevailing in the aviation sector. Already, the collapse of Jet Airways, the oldest private airline, due to gross mismanagement and the public spat between the co-founders of IndiGo, the largest airline, reflect the growing turmoil in the country’s aviation industry due to structural flaws and poor corporate governance practices. Air India has a heavy baggage of legacy issues. With a debt burden of Rs 58,000 crore and market share plummeting to 13%, the 85-year-old behemoth is virtually in a comatose condition, being kept alive with periodic bailouts at taxpayers’ expense. It is a fit case for privatisation because the government will have to eventually exit the aviation business and offload the baggage of the socialist past.
There is a need to fast track the disinvestment process keeping in mind the lessons learnt from the earlier failed attempts. One possible reason for lack of response last year was that the government sought to retain a significant stake of 24% post disinvestment. Many potential buyers contend that even as a minority shareholder, the government can interfere with the functioning of the airline in future. In hindsight, it appears that the government should have gone ahead with full divestment of its holding, as suggested by Niti Ayog. There is now a strong case for the government to divest 100% stake. It should be undiluted and total privatisation. While the government’s residual stake could be a dampener for potential buyers, there are other equally important factors responsible for zero response. Permanent staff accounts for over 40% of the total employees of Air India, entailing a huge financial burden on the buyer. With global fuel prices soaring, the dynamics of the aviation business could become more complex and even turn adverse in the short-term, unless the government concedes the demand of the aviation industry to bring aviation fuel under the Goods and Services Tax.