Air India no-show: Govt blames inadequate risk-taking appetite

Air India
What went wrong? Who messed it up? The day after Air India disinvestment failed to take off, government officials across ministries and departments spent hours trying to find an answer to these questions. Many of those spearheading the sale put the blame on the dealmakers and advisors for failing to attract potential bidders, others pointed at the industry for the fiasco. 

But after long meetings, including in the Prime Minister’s Office (PMO) on Friday, the consensus by late evening was that potential bidders didn’t show any animal spirit or any spirit at all. A top government official told Business Standard that ‘’inadequacy of risk-taking appetite in the industry’’ resulted in the disinvestment process failing. According to him, nothing else or nobody else should be blamed for not receiving even a single expression of interest for buying a controlling stake in the national carrier. While businesses had shown an interest in Air India earlier, they backed out as the process progressed. 

A source described the morning after as “a time of confusion and mixed feelings’’. This saga was no different, he said. So, officials dealing with the issue were heard putting the blame on ineffective communication strategy during the process for not getting bidders. “The terms of sale were very liberal, but there was no buzz created about such an important strategic sale. The failure was in terms of communicating them to potential bidders,” a senior government official said.

According to guidelines of DIPAM, the government cannot directly communicate with prospective buyers and it is the responsibility of transaction advisor to communicate the terms and generate an interest among prospective buyers. “That the seller (in this case the government) cannot directly communicate with suitors is a big hurdle, there is a need to relook at this aspect,” a second official said. 

As the process now goes back to the drawing board and the group of ministers (GoM) for further brainstorming on the future course of action, sources hinted at the impact of the Rashtriya Swayamsevak Sangh (RSS) view on Air India disinvestment. In fact, the Swadeshi Jagran Manch (SJM), an economic think tank affiliated with the RSS, is learnt to have had multiple meetings with key ministers in the last one month to talk on Air India. The SJM and other Sangh Parivar affiliated organisations have also had a meeting with BJP chief Amit Shah recently and the subject of disinvestment of Air India came up. The SJM is giving final touches to a revival plan for Air India, including a proposal to privatise quite like British Airways did in 1987 through an IPO. SJM Convener Ashwani Mahajan said it’s incorrect that the Sangh Parivar was opposed to disinvestment. “We believe there could have been other ways to disinvest Air India.” 

An official who’s tracked the disinvestment process, however, dismissed the idea of the RSS ideology having any play here. ‘’Often there’s an invisible fall guy when the system fails to deliver,’’ he said. According to him, senior officials had realised earlier on the interest from the industry was weak. 

He also pointed out that the government would keep the Air India pot boiling to send the right signal to markets. ‘’Nothing much will actually happen, so it will be status quo for quite some time.’’ The parameters are unlikely to be changed in any significant way, another source said. “This is an election year and the Swadeshi lobby/employees have been unhappy with the exercise. So nothing new is likely.’’ It’s off by at least 18 to 24 months, he said. 

Analysts and industry players believe the sale conditions, especially the government retaining a 24 per cent stake in Air India, have been a spoilsport. However, government officials cited the Companies Act 2013 to point out that minority shareholders are equity holders of a firm but do not enjoy the voting power of the firm. According to airline executives, the high fuel price environment and the structure of the deal were responsible for the flop show. “Air India is a complex property. For even a minor turnaround in its operation, there is a need for massive restructuring and capital infusion. No Indian company has the access to capital and expertise to do that and no foreign airline would commit such huge capital with minority stake,” an executive of a South Asian airline said.