The Centre’s much-hyped attempt to privatise Air India by disinvesting 74 per cent equity has come a cropper, the offer failing to attract even a single expression of interest as the deadline passed last week. While officials have tried to gloss over this by terming it a learning experience, the task of finding prospective suitors for Air India (AI) is only likely to get tougher from here. Of the handful of domestic airlines, only a couple have the financial wherewithal to take on a rival of AI’s size. Of late, rising fuel prices and fare wars have led to a squeeze on their profitability. International bidders are unlikely to be enthused by foreign investment rules which require substantial ownership and control to be vested with locals.

Three key aspects of the disinvestment seem to have to have put off prospective buyers. One, AI’s financials are in poor shape with its operating profits consistently falling short of interest costs in the five years to FY17, resulting in net losses of between ₹3,800 crore and ₹6,200 crore. It had run up prodigious debt of ₹48,781 crore by end-March 2017 of which acquirers are expected to absorb ₹33,392 crore. Both the P&L and the debt position, major concerns for any acquirer, are subject to revisions for FY18, but the Centre hasn’t shared AI’s latest financials. Two, overheads and a large employee base are believed to be key contributors to AI’s low profitability. Any acquirer will need to restructure its operations to rein these in. But the disinvestment terms require the acquirer to run the airline on an ‘arm’s length’ basis, and sign a covenant on safeguarding employee interests. Three, the government plans to retain a 26 per cent stake post-disinvestment, casting doubts on whether the buyer will enjoy a free hand in strategic decisions. While interested parties have requested clarifications on these aspects, the Centre has refused to divulge further details until the Request for Proposal stage. It is thus unsurprising that the many inquiries haven’t translated into even a single bid.

However, the national carrier’s disinvestment isn’t a lost cause. It boasts of several coveted assets that can be a valuable source of competitive advantage to an acquirer — a strong brand, 138-aircraft fleet, extensive reach including 39 international destinations, prized landing and parking slots at key domestic and global airports, bilateral rights and code-sharing agreements with the world’s leading airlines. As it attempts to rework the disinvestment process, the Centre should do its utmost to put a value to these intangibles. Subsidiaries such as AI Engineering Services and Alliance Air must be included, if they sweeten the deal. And, the government should come clean on AI’s latest financials and the full deal terms, instead of playing hard-to-get with prospective buyers.

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