Civil Aviation Minister Hardeep Puri's 'sell or shutdown' ultimatum for Air India has caused a flutter. There seems to be an element of hyperbole, though, in the Minister's statement -- a hard-bargaining position with naysayers to the sale proposal.

The case for selling Air India has been established over the years. It's tough to argue in favour of running a perpetually loss-making airline, neck deep in debt on taxpayers’ money, especially in fiscally challenging times such as these.

The flop sale attempt about a year and half back was due to several factors, including: 

a) A partial sale that would still have had the Centre hovering around as a significant shareholder

b) The huge debt burden that would have to be taken up by the acquirer

c) Lack of full freedom in running the business.

This time around, some of these concerns are reportedly being addressed with a 100 per cent stake sale, hiving off a chunk of the debt before the sale, and a free hand to run the business with some safeguards for employees. This should hopefully help the Centre find some bidders.

Loss making it may be, but Air India has some unique strengths that could give a boost to a potential acquirer's  aviation operations -- for instance, its prized international slots and a strong presence locally and domestically.

Rather than threatening a shutdown of Air India, the Centre should keep trying to sell the airline until it succeeds. The buyer will have to restructure the airlines over Rs 54,000 crore debt and put in a significant amount of operating capital. Some maintain this will have to be to the tune of Rs 4,000-5000 crore. Further, AI’s 125-plus fleet is ageing and will have to be replaced. Then there is the issue of various entrenched unions in the airline.

Some pilots have gone to court against the airline seeking recovery of their dues. One case which reached the Supreme Court has been referred to the NCLT and is scheduled to be heard on December 9.

Where will the buyers come from? Most Indian companies, including the Tatas, are financially tight. Even Indigo cannot afford Air India. Spicejet certainly cannot. A foreign buyer can only take 49 per cent. After that it ceases to be an Indian carrier and cannot get ‘bilaterals’. (Bilaterals are signed between governments on the number of permissible foreign flights in a country. India has signed bilaterals with 109 countries.)

So, would a foreign buyer come if they are only allowed 49 per cent?

There was once a great deal of national pride surrounding Air India, but most people now accept that its huge losses mean a sale is now inevitable. The question, however, is whether the sale can be done and dusted by March so that the sale proceeds can ease the government’s budget shortfall.  There are complex legal issues and heaps of nitty-gritty work to be done in just four months. Selling Air India may be the only solution possible, but a fire-sale would be a bad idea.

In any case, a shutdown of the airline is hardly an option, and the Centre is likely to be well aware of that. One, the closure of Air India will remove significant capacity from the market and cause another round of massive turmoil, soon after the grounding of Jet Airways earlier this year. The country's aviation sector and air passengers can ill afford that. Employees, creditors, and a string of other stakeholders will be left in the lurch and at the mercies of the long-drawn IBC process.

Next, it will only serve to accentuate the monopoly-like situation that is building up in the domestic aviation market, with IndiGo's market share now close to 50 per cent. Healthy competition is a must for the orderly and fair growth of any sector.

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