The government must push to conclude the Air India divestment process before the end of fiscal 2019 but after taking on a board investor feedback to structure a more realistic offer, the Centre for Asia Pacific Aviation (CAPA) said. Less than 72 hours after the government announced that it did not receive a single bid in its attempts to divest 76 per cent stake in the national carrier, CAPA suggested that the government must consider divesting 100 per cent stake in the airline for better outcomes for all the parties.
“Continuing under government ownership will lead either to an indefinite drain on the exchequer or to the closure of the airline at a great cost to employees, taxpayers, and to the economy,” CAPA argued.
It added that only aircraft-related debt should remain on the airline’s books and labour issues should be clarified apart from allowing a strategic partner to integrate Air India with its existing airline operations. “The terms of labour restructuring should be clarified upfront. In order to enable labour restructuring by means of a voluntary retirement scheme (VRS), and potentially retrenchment, an arrangement similar to the Dharmadhikari Committee of 2012, should be established to provide clarity on the favourable compensation that will be paid out to those who choose VRS or lose their jobs. Proceeds from the divestment should be used to fund generous golden handshakes to employees so that labour risk is not transferred to the new owner.
The process and costs associated with handling voluntary retirements and retrenchment will be the responsibility of the special committee and not the investor,” CAPA argued. To ensure that Air India remains focused on its operational and financial performance whilst the divestment process continues, the carrier should be placed under Special Administration, comprising a team of highly experienced and reputed professionals.
CAPA said the failure of the divestment process was undoubtedly disappointing. “With a general election due in less than a year, the natural inclination may be to shelve the transaction until the next government is formed. In our view, that would be a serious mistake. The government now needs to pursue divestment with even greater determination, in part because the alternative is far worse,” the aviation advisory pointed out.