Thanks to circumstances, we now have not one but two domestic airlines available in a fire sale. One collapsed financially in April and is now at the bankruptcy court (Jet Airways), and the other is on life support but still flying—Air India. That both are on the block at the same time can be directly linked to the general elections. The Narendra Modi government did not want two political time bombs going off together before the polls. The privatization of Air India was put off indefinitely after it drew a blank in May 2018, and the rescue effort of Jet Airways was left to simmer aimlessly for months. Once the elections got over, it took no time for the bankers to pack Jet off to the National Company Law Tribunal (NCLT).

Kicking the can down the road, though, does not mean we are now going to get quick progress on either. Civil aviation minister Hardeep Puri announced last week that the government will go ahead with Air India’s disinvestment. But with Jet also now available for purchase, the government will actually have to choose between two options—whether to push Air India’s sale hard with a better offer to suitors, or to get Jet flying again within the three-month resolution time set by the NCLT.

The critical word above is “choose". It is unlikely that both airlines will get sold simultaneously when bidders have the option of driving down the cost of either acquisition. It is likely that Jet will get many more expressions of interest, as it comes without strings attached and its acquisition cost may be low. Bidders can also bid for parts of Jet. For anyone to bid for the whole, there is an invisible string attached that leads up to the Directorate General of Civil Aviation (DGCA), which will have to reassign landing rights, airport slots, deregistered planes and international routes.

As for Air India, after last year’s flop show, the government will have to offer real sweeteners to get potential buyers to bid—and most of these sweeteners involve drastically reducing the total load of debt the airline now carries, not to speak of the long-term liabilities the airline has in terms of ageing staff and high-cost infrastructure. Most importantly, a bidder will be interested only if there is a clear government guarantee that it will not interfere with how the airline is run, assuming the initial bid is for 74%, with the balance being sold a bit later. A 100% sale is obviously the best option to try first.

There are two reasons why it is tough to see both Air India and Jet being sold simultaneously. One, as an interested party in Air India’s sale, the government can maximize its own sale receipts only if Jet as a whole does not start looking attractive. And two, the NCLT process, though initially given a timeline of three months, is not likely to see that quick a resolution as it requires many government banks to agree to the terms of the resolution. The civil aviation ministry and the finance ministry can, at any time, put a spoke in the wheel.

From a purely financial angle, Jet may be available at a bargain-basement price, and nearly 90% of its loans may well be written off. There is also little chance of government meddling with the airline in future. And yet, Jet has value only if it can get back all its old rights to fly to various destinations as well as its airport slots. The question is: Will the government enable this, given its vested interest in offloading Air India, and also the possibility that this can only come by forcing rival airlines to give up their temporary landing and airport slots?

In short, both Air India and Jet’s private sector rivals may have a vested interest in delaying Jet’s revival, especially as they have gained the most from its exit. The aviation business has, in the past, seen a lot of behind-the-scenes lobbying, as was the case even before Jet went into a tailspin. When Kingfisher Airlines went down, its rivals made sure that policies were not changed fast enough for it to find a buyer. The same set of vested interests may well work this time too.

When this writer had interviewed the Prime Minister last year for Swarajya magazine, the latter made it clear that the government was committed to the Air India sale, and that the failure of one sale bid could not be seen as a lack of commitment to disinvestment.

Modi said: “You have to differentiate between the lack of response to one sale offer and a policy decision. At the Cabinet level, we have cleared the sale of not only Air India but several other (loss-making) public sector units. That they are yet to be sold is the result of timing and process. We don’t want to make a sale where we will be accused of selling something for X amount when we could have got more."

What Air India has going for it is simply the fact that it is still flying, and so there is no gestation period before revenues start coming in. This, unfortunately, is not the case with Jet, which has been grounded since the second half of April, and making it fly again would require large upfront spending.

Willy-nilly, the government will have to make a choice between two goals: Whether to get Jet flying again or to get Air India off its hands before that. Both are unlikely to happen together. More so when it is clear that the industry will be more viable with one major player less.

R. Jagannathan is editorial director ‘Swarajya’ magazine

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