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BUSINESS:
PRIVATISATION
Pilot
Point
The
IPG's is the most unique, if not an odd bid. The pilots of AI not only
claim the right to run the airline as much as any other bidder, but also
oppose bringing in a foreign airline, which they fear would retrench staff
and turn AI into a feeder airline. If given charge, the IPG promises to
wipe out AI's accumulated losses of Rs 1,000 crore, raise the airline's
operating revenues from Rs 4,600 crore to Rs 12,136 crore by 2004, double
the fleet strength from 23 aircraft at present to 45 in four years and
appoint a professional management. It claims to have already arranged
technical and financial support and held talks with Boeing and Airbus
for fleet renewal. Says Captain K.R. Singh, general secretary, IPG: "Employee
effort will place AI among the best in the world in terms of performance
and profitability."
The precedent
quoted is of United Airlines of the US which is part owned by its employees.
But two factors could go against IPG's bid. Its claim to use the employees'
provident funds may not fructify simply because all AI employees are not
with IPG as yet. Moreover, if employee involvement could turn around AI
so dramatically, the airline wouldn't have nosedived the way it has.
Then, of
course, there are the Tatas who formally entered the fray before anybody
else and have bid for both 40 per cent of AI and 26 per cent of IA. No
prizes for guessing its partner. It is Singapore Airlines with which the
Tatas have been hoping to enter the Indian skies for years now. Arranging
finances shouldn't be an issue for the Rs 35,900-crore Tata Group, but
what's unclear is whether the Government will allow one group to run both
airlines. There are definitive advantages of an expansive air network,
operational synergy and unbeatable reach, but these could not convince
the Government to merge the two airlines despite attempts at doing so
for years. The Tatas must hope to do what the Government couldn't.
So must
the L.N. Mittal Group and the Hindujas, who too have bid for both the
airlines. Although the $6 billion L.N. Mittal Group has no experience
in running airlines, its proven track record in turning around steel companies
all over the globe would be handy for the two airlines which desperately
need restructuring. Comments Annanya Sarin, spokesperson for the L.N.
Mittal Group: "There is substantial potential to turn around state-owned
enterprises in India." The group's Indian partners are led by Kotak
Mahindra. It would seek technical and strategic advice from British Airways
and Qantas.
The Hinduja
bid has come through their group company Ashok Leyland. Its only experience
in aviation had been the joint promotion of a cargo airline with AI and
Lufthansa. It considers investment in AI and IA synergistic. Surely, finance
won't be an issue for the $15 billion group but emerging out of the shadows
of Bofors could be.
The only
foreign airlines directly in the bid are the four under the SkyTeam alliance
and probably the Dubai-based Emirates. Their technical and financial credentials
notwithstanding, what could dampen their prospects is the absence of a
policy on foreign direct investment in AI. The Government's current decision
to allow 26 per cent holding to foreigners is based on a cabinet decision
but has no policy backing. Though the Disinvestment Ministry has requested
the Government to formulate a policy soon, any delay or confusion could
impair the chances of foreign airlines which are directly bidding for
stakes in AI.
There are
other confusions to be cleared. The draft of a new civil aviation policy
has been awaiting final approval for years. For any private investor,
to acquire stakes in the two national airlines with an impending change
in civil aviation policy, isn't a comforting thought. In the case of AI,
the sale of its subsidiary Hotel Corporation of India must fructify before
the final bid. The sale, which has been under way, could fetch up to Rs
800 crore for the airline. The equity base of both AI and IA is also ridiculously
small-Rs 153 crore and Rs 105 crore respectively. That poses problems
in raising debt and in the valuation. No wonder, there isn't even a rough
estimate of the value of the two airlines, which usually is the first
step in the sale of a company. The valuation will have to take into account
the brand value of AI and IA, their bilateral route rights, human resources,
charter route rights and real-estate value. It's also not clear whether
the government will ever sell its entire stakes in the two airlines, and
till it did would the airlines be answerable to Parliament?
Despite
these complications, there is plenty to lure investors to the two airlines.
The domestic air passenger traffic in India is expected to grow by 7 per
cent a year while global air traffic out of the country will grow by 8
per cent a year. More lucrative are the unused bilateral rights. Out of
the 97 bilateral routes that India has rights to fly on, AI and IA are
using less than 40. Says a spokesperson of the Hinduja Group: "Air-India's
established brand equity and unutilised bilaterals could be substantial
performance boosters." To top it all is the massive real estate that
the two airlines are sitting on.
Investors'
perception of the airlines' value will determine how much the Government
will get from the sale of their shares. Individual estimates are upwards
of Rs 10,000 crore. That would be the Government's most substantive haul
from disinvestments so far.
-with
V. Shankar Aiyar
Pg.
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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 
