From the mid-’80s right up to the dawn of the new millennia, governments across most of the developed world exited the airline business. Former Prime Minister Atal Bihari Vajpayee wanted to do the same in 2000 but politics came in the way.

What Vajpayee had started 18 years ago might finally be realised this year. On Wednesday, Prime Minister Narendra Modi’s government took a decisive step in that direction – of exiting Air India.

Nearly nine months after the cabinet committee on economic affairs agreed to start the process of disinvestment in Air India, the first set of documents to officially invite suitors for Air India were released by the Ministry of Civil Aviation.

The 200-page document called the preliminary information memorandum (PIM) lays out what is on offer for the interested bidders as well as formalising strict pre-conditions to qualify as a bidder for Air India.

On offer is a 76% stake in Air India Ltd, 100% stake in Air India Express Ltd and a 50% stake in Air India SATS Airport Services Ltd. To be sure, the PIM states that Air India’s other subsidiaries — Air India Engineering Services Ltd, Air India Air Transport Services Ltd, Alliance Air Services Ltd and Hotel Corporation of India — will be sold by government but not as a part of Air India, Air India Express and Air India SATS transaction.

The 24% stake that the government retains is their attempt to be prepared to cash in on any future improvement in the fortunes of Air India.

What one gets with a 76% stake in Air India is an operational fleet of 104 aircraft of which only 69 are owned outright or through financial lease by the airline. The planes, which have an average age of 7.4 years, may not be most attractive proposition for suitors like IndiGo, Tata Group-Singapore Airlines combine or any other airline from West Asia with deep pockets.

One of the crucial assets that Air India offers its new owners in this era of constrained airport infrastructure is 3,739 domestic slots for arrival and departures at local airports and 2,543 international slots for arrivals and departures at both Indian and international airports.

Highlighting the importance of the airport slots, EY the transaction advisor to the government said in the PIM, “Combined airline has slots at top domestic airports which are growth constrained due to airport infrastructure issues. This is a significant advantage compared to any new player looking to enter or an existing player looking to expand into the Indian market. Slots can be utilized to take benefit of India’s favorable geographic position in global air travel market and develop hub for international operations.”

Further, the new owners of Air India would immediately get a 12.2% domestic market share and a 10.37% share of India’s international air traffic market.

But all good things must come at a cost and in the case of Air India, the cost that the new owners pay will have to factor in the Rs 33,392 crore (roughly $5 billion) of debt and current liabilities that will remain on Air India Ltd’s book. This is after the government would have taken out roughly Rs 25,000 crore of debt and placed it in a new entity called Air India Asset Holding Ltd, which will also house some land assets of Air India as well the airlines collection of art and antiques.

If a $5 billion debt on the balance sheet from day 1 doesn’t seem daunting enough sample this: The PIM does not indicate any leeway that the new owners will have with regard to rationalising the employee count at Air India. According to the PIM, Air India has 16,834 employees as on December 1, 2017 of which 11,214 are permanent employees. Though EY highlights the fact that, "37.6% of the permanent employees or nearly 4,200 permanent employees will retire in the next five years", the sheer scale of integrating such a large workforce under new management is unlikely to go amiss by any potential buyer. Though the encouraging sign is that Air India’s employee cost as a percentage of revenue is only 12%, one of the lowest amongst international airlines like Singapore Airlines (15%), British Airways (21%) and Cathay Pacific (20%).

Air India Express Ltd has another 1,176 employees but here the permanent employees are only 96. Perhaps the easiest to handle in terms of staffing related issues would be Air India SATS Airport Services Ltd.

Despite this enormous task of turning around an airline which has accumulated losses of Rs 27,231 crore between 2012-13 and 2016-17, and even in 2016-17 posted a loss of Rs 5,765 crore on revenues of Rs 22,177 crore, there will be many that will be interested. However the PIM has some very stringent conditions to sift out the interested parties. For one, interested bidders would need a net worth of Rs 5,000 crore as well as show profits in at least three of the five preceding financial years.

When bidding in a consortium, a clearly defined lead member needs to hold majority stake in the corporate entity representing the consortium. However, if a domestic airline partners with others to form a consortium, then the profitability requirement will not disqualify such a bid as long as other members of the consortium are profitable.

Such conditions appear to open the playing field for everyone from SpiceJet to Jet Airways. So far, only IndiGo has publicly expressed a desire to acquire Air India. Vistara and Singapore Airlines, one half of the joint venture that runs Vistara, have also said that they have an open mind when it comes to Air India. What happens on 28th May, when qualified interested bidders are invited to the second stage of bidding is anyone’s guess.

As tempting a proposition it is to own this 85-year old airline which was started JRD Tata, the risks associated with its purchase are equally high.

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