Air India fails to find another sucker

The whole Air India disinvestment fiasco conclusively proves that public sector enterprises in India have a sell by date and literally so. Ultimately the government had to eat crow in its ambitious but ill-conceived plan to sell a majority stake in the country’s stricken national carrier. Two months after it invited expressions of interest in the loss-making airline, it has come away without a single bidder.

READ: Why it became impossible to get bids for Air India

In the meantime rising oil prices (up almost 5% over the last two months) and a rising rupee have rendered the operational conditions for airlines across the world more hostile even as that giant sucking sound of more tax payer money being swallowed by the ailing airline has gotten deafening.

With a looming general election—now less than a year away—the chances of finding a suitor who will actually put money behind a bid, without abject capitulation by the government, are negligible.

Against its virtues of landing rights in key destinations and some 2,000 flights which could have offered a potential buyer like InterGlobe Aviation Ltd (IndiGo) higher fleet utilization, are the cost of restructuring its bloated employee base as well as the enormous debt Air India is carrying. At $5 billion, that’s nearly 2% of the total NPAs of the Indian banking sector.

Since many of the potential bidders are listed and traded companies, they would have been wary of the impact any such misadventure would have on their stock price. Investors certainly would not appreciate their investees buying out a majority stake in a hugely loss-making, government-owned behemoth with such large debts on its books.

Mint Primer: What’s next for Air India after failed stake sale?

Twice before, in 1996 and again in 2000, much more feasible plans to sell the airline, then in much better health than now, were scuttled. The failures of the past have now caught up with Air India’s owner. This government may well insist that the malaise is not of its creation but it has also been guilty of dawdling for nearly three years and leaving it too late.

How different it might have been had either of the earlier disinvestments gone through. The decades after 2000 have seen Indian fliers take to the skies in growing numbers, making India the fastest growing aviation market in the world. Not only would the government have realized some meaningful value from its sale, it would have also saved itself the millions of dollars that it has had to pump in every year since merely to keep Air India alive.

Consider for instance earlier sales like those of CMC Ltd. in 2001 and VSNL a year later when the two companies were still relevant and solvent. The government sold VSNL to the Tata group for Rs1,439 crore at Rs202 per share against the then market price of Rs179 per share. Compare that with the fate of MTNL (currently trading at Rs15 against its peak price of Rs216) and the crumbs it would fetch today even if the government found a buyer for it.

Similarly, Tata Sons paid Rs152 crore when it acquired a 51% stake in the government-owned CMC Ltd in 2001. What relevance would a computer maintenance corporation focused on large mainframes have had in today’s environment? For further proof take a look at the steady erosion in the value of erstwhile blue chip BHEL Ltd.

That fate awaits many other public sector enterprises including those considered sovereign jewels. With the rapid solarification of the economy, the oil majors, our national champions, may be nearing their point of no return. Even today, with Big Oil’s net investment in the industry dipping to near zero levels, only a macho investor with flawed logic would actually look to buy an ONGC.

In Air India, the government has a dud on its hands, an asset so sick that the cost of keeping it alive is far more than any perceived value. Indian tax payers have been footing the bill for keeping Air India alive. Finding the next greater fool may not be so easy.