Air India could head for a two-year loss of US$1.5 to 2 billion and a failure to sell a majority stake in the airline could mean that the flag carrier will close down, Sydney-based
aviation consultancy, Centre for Asia Pacific Aviation (CAPA) said in a report.
In a grim note, CAPA expressed its concern over the ongoing disinvestment process in Air India, calling for amendments in Expression of Interest (EoI), especially for labour and debt.
"Unless bidders are confident that they will be ring-fenced from possible political risks if successful, this could prove to be a key reason for possible non-participation by some parties at RFP
stage," CAPA noted.
Earlier last month, IndiGo, India’s largest airline, decided to pull out of the race for Air India, followed by Jet Airways, which along with Air France-KLM and Delta Air Lines had showed interest in participating in Air India disinvestment. Unconfirmed reports from India also said that India’s steel-to-autos conglomerate Tata Group, widely seen as a potential suitor for Air India, was unlikely to bid for the state-run carrier because it considered the government’s terms as too onerous.
The Indian government of prime minister Najendra Modi on March 28 issued a preliminary information memorandum for the proposed sale of up to a 76% stake in Air India along with management control to private entities.
CAPA said it estimates that Air India is headed for 2-year losses of US$1.5-2 billion in FY19/FY20. "Failure to divest could see AI close unless government is willing to spend taxpayer funds. It would be far less costly to make the offer more attractive to investors," it added.
Deadline for submitting AI bids has been extended
An earlier Reuters report said that the government has stipulated the winning bidder cannot merge the airline with existing businesses as long as the government holds a stake. The winner may also be required to list Air India and would need to abide by conditions designed to safeguard employee interests, restricting its ability to cut staff.
Responding to the muted interest in the divestment offer, the Ministry of Civil Aviation last week issued a statement saying it had extended the deadline for submission of initial bids for the Air India stake sale till May 31.
No change of basic terms of the divestment plan
It also made public 160 queries it had received from interested bidders seeking clarity on the initial terms. These were mainly about the impact of the government's decision to hold a 24% stake, the make-up of the airline's debt and liabilities, its latest financial performance and workforce.
Sources said it was unlikely that the deadline extension or the clarifications on the divestment process would attract new interested parties or entice earlier bidders to review their decision, because the basic terms of the divestment plan remain unchanged.
India will announce the qualified bidders for the beleaguered airline on June 15, according to the Ministry of Civil Aviation statement.
Nol van Fenema