Airline companies and experts both say there is one big stumbling block in the terms and conditions of the expression of interest for the sale of Air India. And that is the Rs 50 billion net worth criteria for Indian carriers, which only Indigo Airlines will meet, forcing the others to go for a consortium instead of bidding alone.
In a consortium, Indian carriers not meeting net worth and the profit-after-tax criteria (they have to make PAT in three out of five years) are limited to a 51 per cent stake. This simply means that they can hold only 38 per cent in Air India, because it will be 51 per cent of 76 per cent, with 24 per cent remaining with the government. So if one partner in the consortium can hold no more 38 per cent, the remaining stake of similar size will have to be taken up by the other partner/s, whether foreign or domestic. Says a senior executive of a company involved in the aviation business: “This restriction of 51 per cent should be removed as it does not serve any purpose at all. It clearly is discouraging current domestic players from bidding.”
The third cause of concern, say experts, is that the consortium shareholding pattern has to be frozen at the EoI stage, even before the prospective bidders have been given access to the data room to analyse the company's books. Experts point out that no global airline board will commit to a shareholding without even a detailed analysis of the books in the the data room.
The fourth concern is the stiff timeline for completing the acquisition, which experts say is impractical. They argue that even sale and acquisition of smaller airlines globally have taken 12-18 months on accout of due diligence, analysis, clarifications, planning and final negotiations. They argue that the government seems to be in a hurry to complete the process before the national elections in 2019.
Those in the business say that the government has said that it will provide clarifications by April 30, and bidders are supposed to finalise consortium shareholding, all legal clearances and paperwork by May 14. They argue that this schedule is completely unrealistic as it generally takes about forty five days between issue of clarifications by the government and the EoI submission date.
The other concern is that the government has decided that all contingent liabilities go to the winning bidder. "This we think is not acceptable. These are legacy issues that are best handled by the government,” says an executive who had earlier shown interest in the bidding process.
Also the winning bidder has to keep the Air India brand and operate it as a standalone airline on an arms-length basis. That could take away the synergy benefits on network, slots, fleet, staff and assets. Also the government should leave it to the new buyer on when it should go for an IPO, depending on market forces, rather than being forced by the government with a clear deadline.
In a consortium, Indian carriers not meeting net worth and the profit-after-tax criteria (they have to make PAT in three out of five years) are limited to a 51 per cent stake. This simply means that they can hold only 38 per cent in Air India, because it will be 51 per cent of 76 per cent, with 24 per cent remaining with the government. So if one partner in the consortium can hold no more 38 per cent, the remaining stake of similar size will have to be taken up by the other partner/s, whether foreign or domestic. Says a senior executive of a company involved in the aviation business: “This restriction of 51 per cent should be removed as it does not serve any purpose at all. It clearly is discouraging current domestic players from bidding.”
The third cause of concern, say experts, is that the consortium shareholding pattern has to be frozen at the EoI stage, even before the prospective bidders have been given access to the data room to analyse the company's books. Experts point out that no global airline board will commit to a shareholding without even a detailed analysis of the books in the the data room.
The fourth concern is the stiff timeline for completing the acquisition, which experts say is impractical. They argue that even sale and acquisition of smaller airlines globally have taken 12-18 months on accout of due diligence, analysis, clarifications, planning and final negotiations. They argue that the government seems to be in a hurry to complete the process before the national elections in 2019.
Those in the business say that the government has said that it will provide clarifications by April 30, and bidders are supposed to finalise consortium shareholding, all legal clearances and paperwork by May 14. They argue that this schedule is completely unrealistic as it generally takes about forty five days between issue of clarifications by the government and the EoI submission date.
The other concern is that the government has decided that all contingent liabilities go to the winning bidder. "This we think is not acceptable. These are legacy issues that are best handled by the government,” says an executive who had earlier shown interest in the bidding process.
Also the winning bidder has to keep the Air India brand and operate it as a standalone airline on an arms-length basis. That could take away the synergy benefits on network, slots, fleet, staff and assets. Also the government should leave it to the new buyer on when it should go for an IPO, depending on market forces, rather than being forced by the government with a clear deadline.
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