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BUSINESS:
PRIVATISATION
Two
Airlines And Six Suitors
Privatisation
of Indian Airlines and Air-India finally takes off. The Government could
get up to Rs 10,000 crore making it the biggest disinvestment exercise.
By
Rohit
Saran
It's
the end of the first lap. But the race for a share in India's two national
airlines has only just become exciting. Ten months after the Government
decided to part with a 51 per cent stake in Indian Airlines (IA) and six
months after it agreed to shed 60 per cent control in Air-India (AI),
the two airlines have now found takers. At the close of filing of expressions
of interest-preliminary bids-on November 10, there were six major contenders
for the two airlines, with three bidding for both the national carriers.
That's not
a bad response considering the strings of conditions attached to the bidding.
For starters, the bidding is only for 26 per cent stake in IA and 40 per
cent in AI. That is as much as the Government is currently willing to
cede to what it calls its future strategic partner in the two airlines.
The remaining disinvestments (25 per cent in IA and 20 per cent in AI)
will be in favour of employees, public and financial institutions. The
strategic partner will have the assurance of freedom in day-to-day operation
as long as a policy matter isn't involved. Explains Pradip Baijal, secretary,
disinvestment: "The partner will have freedom in day-to-day operations.
But like any other company, policy matters will need the board's approval."
Which is where the Government will be present with its 49 per cent stake
in IA and 40 per cent in AI.
Given the
state of the two state-owned airlines, especially AI, policy matters will
pop up right from the day strategic partners enter the airline. Over-staffing,
ageing and small fleets, limited destinations and sharing of bilaterals-agreements
between two countries on the number of landing rights given to each other's
airlines-are all policy issues and will have to be sorted out in order
to turn around the airlines. There are also restrictions on foreign investments-up
to 26 per cent in AI and 10.4 per cent in IA. That's one reason why there
are only four takers for IA, three of who are also bidding for AI.
So, who
is the most eligible suitor for one or both airlines? The preliminary
bids filed by the investors provide nothing to assess eligibility. The
only criterion specified for the bid was that the group or consortium
interested in the airlines should be worth at least Rs 1,000 crore. The
investors weren't even required to specify their partners. Even those
who specified partners had the freedom to change them at a later stage
of the bidding process. The only two bidders who have prepared some kind
of a business plan are Videocon International, which has bid for IA, and
the Indian Pilots' Guild (IPG), which is interested in AI.
Videocon,
the only company or group to bid solely for IA, has plans as precise-and
as ambitious-as reducing the domestic air fares by up to 30 per cent,
adding 45 more planes to IA's fleet and listing the airlines on the New
York Stock Exchange with market capitalisation at par with US-based airlines.
Asserts Venugopal Dhoot, chairman, Videocon: "Domestic air travel
is poised for a phenomenal growth. We are confident of offering the right
services at the right price." He cites the turning around of the
Philips plant in West Bengal as an example of Videocon's ability to take
on the assignment. Dhoot has the financial backing from Boston Bank and
Chase Chemical Bank-both US-based-and is talking to at least two south-east
Asian airlines for a technical tie-up.
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The
Indian industry has increased its decibel level of whining. Instead, it
should get the government to deliver, says INDIA TODAY Associate Editor
V. Shankar Aiyar in 
