The Indian government has been keen to privatize Air India for sometime but has failed to find an interested party. What would it take for them to find a buyer? Let us find out.
What is the story so far?
In summary, Air India has failed to find a purchaser due to debt of the airline and brutal local market conditions (that anyone would be crazy to invest in).
A more detailed history begins with the rise of low-cost carriers and the ensuing price war in India. At one point, low-cost carriers like Go Air, Spicejet, Indigo, and others lowered prices so much that it only cost 0.02 cents per flight. Naturally, a full-service carrier like Air India and Jet Airways struggled. The latter, of course, has shriveled to a shadow of its former self and can hardly be called an airline anymore.
Internationally, Air India’s market was eaten up by Middle Eastern carriers such as Emirates, Qatar, and Etihad, who offered cheaper and more connections to the sub-continent than Air India could provide.
The situation has gotten so bad that last month six airports in India refused to refuel Air India aircraft as they had not been paid. The airline was able to come to a very expensive agreement.
Thus the government has been keen to offload this almost bankrupt airline off its books for some time. But attempt after attempt has failed to find a buyer.
What would it take to find a buyer?
There are several steps that the managers of Air India are undergoing to try and make their airline as attractive as possible, according to The Economic Times.
The first is ensuring that staff can be modified as the new owners wish after one year. All 12,000 employees are only guaranteed employment for one year after the sale. After that, it is up to their new employer to decide whether or not they are needed. Additionally, the airline has negotiated with the unions to waive the right for employees to free air travel with the airline and medical insurance (for the entire family for their entire lives) among other things.
As you can see, currently the employees seem to get great benefits from the airline. Therefore, taking back some of their perks (as cruel as that is to suggest) would make the airline more attractive for an investor.
Additionally, Air India’s debt has been somewhat cleared with the government bailouts. Also, bond issues, have helped bring its debt down to more manageable levels. This is a very brief overview of their financial situation, but it might be enough to gather the interest of a few airlines.
The airline also has some of the worst load factors in the domestic market India, hovering around 79%. This is compared to other airlines like Spicejet at 93% and 86% at Indigo. Thus some hard work needs to be done to lift these numbers to make the airline more attractive.
It is not all bad news, Air India also has some great things going for it.
- Landing slots at some of the world’s busiest and most sought after airports, like Heathrow.
- The most international routes from India, 46.5% of the market to be exact.
But is all of this worth it? Will the new owners truly be able to run the airline as they like? The problem is that the airline IS the national carrier of the country. Now, for the first time the government will be giving up a personal thing that they previously controlled.
“Governments are notorious for interfering, and even if they sell off 100%, they might still interfere, because Air India can easily become a political issue after divestment. The new management will need skills to repel such interferences, and at the same time must have integrating skills, fully merging Air India into their own organizations,” spoke an insider to The Economic Times.
Will this be enough? What do you think? Let us know in the comments.