A plan to sell off India’s flagship airline is facing headwinds before it even gets started.
Narendra Modi’s boldest asset sale yet is the proposed divestment of Air India, the nation’s money-losing flag carrier, has run into rough weather after some of the potential bidders opted out upset with the government’s terms.
This setback, however, is the least of Modi’s problems a year before voters decide if he deserves a second term. Resistance to the sale is brewing within Modi’s own party, sundry opposition groups and unions, who could join forces and potentially scuttle the process. A similar attempt nearly two decades back failed due to the same reasons.
The challenge for Modi is to convince the nation’s political class, still rooted in a socialist past, why disposing of Air India is in the country’s best interests. Also, the sale will establish his credentials as an economic reformer steering the state away from running businesses.
“It’s a very tricky situation that may boomerang,” said Satish Mishra, a political analyst at the Observer Research Foundation in New Delhi. A sale would add to the opposition’s narrative that Modi is handing over state assets to the private sector, but Modi is a fighter who wouldn’t want to appear weak, he said.
Here’s what is dogging Air India:
1. With friends like these
One of the sale’s biggest opponent is a lawmaker belonging to Modi’s own party. Subramanian Swamy, an outspoken politician who formerly lectured at Harvard University, has threatened to sue the government if it goes ahead with the process.
“The Government of India needs a government airline,” he said in a phone interview. “I am fundamentally opposed to closing down an airline that has given us so many collateral advantages. This is like selling family silver.”
2. Opposition parties
Then there are scores of opposition parties that resist privatization. Manish Tewari, a lawmaker with the Indian National Congress who estimates the value of Air India at 5 trillion rupees ($77 billion), says the government is hell bent on destroying the carrier’s valuation.
Derek O’Brien, who heads the parliamentary panel on transport, tourism and culture and belonging to the Trinamool Congress, quipped that a sale without consulting lawmakers was akin to democracy being hijacked by the executive class.
There are still several more.
For Air India’s 27,000 employees, a potential sale means an uncertain future. While the government has mandated no worker can be fired for at least a year under a new owner, unions are skeptical.
“We are consulting other unions,” said J. B. Kadian, General Secretary of Air Corporation Employees’ Union, that represents more than half of Air India’s 14,000 permanent employees. “We will definitely take steps to prevent the privatization.”
Until a year ago, Modi was considered a shoo-in for a second term. Not anymore.
Opposition parties have ramped up their campaign against his government, pushing for a no-confidence motion that ended in the least productive budget session in almost two decades. Modi faced a tough fight in his home state of Gujarat, suffered defeat in three key by-elections in March and witnessed protests by students, farmers and Dalits — the lowest class in India’s social hierarchy.
The last thing Modi may want now is another rallying cry for the opposition. A crippling strike by Air India workers backed by opposition parties could potentially damage Modi’s chances for a second term.
5. Dwindling investor interest
The government made it clear last month that it won’t sell Air India in parts. That has disappointed IndiGo, the only airline to have publicly shown interest in the international operations of the flag carrier. InterGlobe Aviation Ltd., which runs IndiGo, signaled April 5 that it is pulling out. Jet Airways India Ltd. also said it has decided against bidding after a review of the government’s plan.
If there are other potential suitors lurking out there, they haven’t come out and declared their intentions.
6. The baggage
Air India isn’t helping its own cause either. The finance ministry, while announcing it would sell 76 percent of Air India, also said the buyer needs to absorb two-thirds of the airline’s $7.8 billion debt. The state enterprise has been unprofitable since its 2007 merger with domestic operator Indian Airlines Ltd.
The advent of budget carriers like IndiGo and SpiceJet Ltd. has undercut the dominant position enjoyed by Air India, which was once a monopoly. The state carrier’s domestic market share has shrunk to about 13 percent from 35 percent just a decade ago. A favorable slump in oil prices handed an operating profit of $46 million in the year through March 2017, which otherwise ended in a net loss of $882 million.
7. What’s the appeal?
The carrier could still be alluring to potential buyers: a fleet of more than 100 Boeing Co. and Airbus SE aircraft; more than 2,300 local flights weekly to 54 airports; 2,543 landing slots at airports including New York, London, Paris and Tokyo; and, global codeshare partnerships with more than 20 airlines. But the price to acquire those assets may become a sticking point.