Air India employees believe 'nobody can run airline better', prepare takeover bid
Since the Air India employees may not have the necessary financial wherewithal, they intend to partner with a private equity fund
There is a twist to the Air India disinvestment tale with a new player entering the fray. This is none other than a group comprising the employees of the beleaguered airline themselves, who are driven by the motto: "If Air Indians are to run Air India, Air India must survive." This could see them going face-to-face with mighty competitors, which could include Tata Sons, among others.
"The employees are bidding," a highly-placed source with knowledge of the matter confirmed to Plane Vanilla on the condition of anonymity.
"They see that nobody would be able to run the airline better than themselves. They know the industry, they know the market. The aviation sector is an extremely competitive and capital-intensive one, and the employees feel that their expertise will be vital in running this airline. Plus their love for the airline is propelling them to make this partnership and go ahead and bid for the airline," the source said.
"The employees of Air India don't want to replace the government with another owner, who is not closely associated with the running of the airline on a day-to-day basis. They want to retain that majority for themselves so that they can run it," he asserted.
Air India has always been at the forefront of national service. Image courtesy: Wikimedia Commons
"The government of India has issued what is called a preliminary information memorandum, and after many rounds of failed attempts to try and secure the bidder, they have come out with this concept whereby the employees can bid for the airline themselves and be a part of the management (or) the ownership structure of the company," he revealed.
However, since the employees may not have the necessary financial wherewithal, they would be able to partner with a financial entity, like a fund, or a bank, or a venture capital for the funding that would be needed, the source revealed.
"So what the employees intend to do is partner with a private equity fund, who will provide them with the necessary financial support and strength, while the employees will provide their expertise in the aviation industry," he added.
According to various media reports, an internal note circulated among the employees said that no money would be collected from the employees till the expression of interest stage is over, and after the first stage, the bid is being planned in such a way that no single employee has to contribute more than Rs 1 lakh.
These employees are from all levels and are over 200 in number, the source said. He attested that a minimum of 51% would rest with the employees of the company if their bid is successful. "The financial partner is only a financial partner," he pointed out.
Tough competition ahead?
However, one expects the Air India employees to run into a stiff competition, with Tata Sons reportedly in talks with its joint venture partner in Vistara, Singapore Airlines, to bid for Air India together. In that case, the bid would be through the full-service carrier Vistara, which had a 6.4% domestic market share in October 2020, according to Directorate of Civil Aviation (DGCA) data. The Tata Group may also bid for the national carrier all by itself if Singapore Airlines refuses to play along.
The deadline for bidding for Air India has been extended to December 14. Image courtesy: Twitter/@Mr_Plane_Boy
"There is certainly competition. We don't know who is going to bid yet. There are many media reports quoting several names. But the confidence of the employees come from their own competence, and that's all that they are going to rely on. They are going to make an earnest effort and an honest bid to try and secure the airline. Let Air India be run by Air Indians and then we will deal with the rest," the source said.
The dilution of the deal terms by the government played a large role in influencing the decision of the employees bidding for the airline, he acknowledged. "Every dilution has made it easier for the employees to sort of work towards a structure where they can also participate. The government has been very kind about taking that into account," he said.
The government reportedly had given potential investors a flexibility to take over Air India's whopping Rs 60,074 crore debt (as on March 31, 2019). According to the expression of interest (EoI) floated by Department of Investment and Public Asset Management (DIPAM) in January, the buyer would have to absorb Rs 23,286.5 crore, or more than one-third of the airline's total debt, while the rest would be transferred to the Air India Assets Holding Ltd (AIAHL) -- a special purpose vehicle.
The bidders would now have the option to decide on how much debt they want to absorb and the cost they would pay for the carrier.
The source said that it is too early to talk about the positive changes that the Air India employees intend to bring about in the functioning of the airline if they succeed in their bid. However, he added that the employees "know better than anyone the pitfalls or the areas where they need specific improvement or deployment of attention".
"When the employees have their own skin in the game, I am certain that they are going to work specifically on those areas and make an existing airline better as opposed to try and revamp something that is well-functioning. So we are looking at enhancing rather than recreating. Air India's legacy spans many decades. We are enhancing that entity," he noted.
Steadfast towards national duty
Air India has been at the forefront of India's Covid-19 battle, evacuating stranded people both from abroad and from India. It has played a stellar role in the government's Vande Bharat Mission, and according to ministry of civil aviation (MoCA) data, till December 2, the Air India group operated 10,428 flights, carrying 8,40,272 in-bound and 5,09,068 out-bound passengers.
Low-cost carrier Air India Express is also to be sold along with parent Air India. Image courtesy: Air India Express
Air India is playing a major role in the bilateral air bubble pacts that India currently has with 22 countries, under which, the carriers of India and the partner country are able to carry passengers both ways and enjoy reciprocal rights. These initiatives have been significant at a time when the government continues to suspend scheduled international commercial air operations in view of the Covid-19 pandemic.
The national carrier had also been the linchpin of the government's Lifeline Udan project, which was launched on March 26, to transport medical cargo and other essential supplies to the remotest corners of the country, with special focus on the Northeast, island territories and hill states, as the government imposed a strict lockdown and suspended all scheduled passenger flights to break the Covid-19 infection chain.
Not only these, but Air India had also operated numerous evacuation flights to countries like China and Italy, which were some of the worst-affected by coronavirus at the start of the year. It brought back not only Indians but even foreign nationals, notably from the quarantined cruise ship 'Diamond Princess' docked off the coast of Yokohama in Japan. It had also carried foreign nationals stranded in India home.
Putting health on the line
The Air Indians had done all these even at the cost of their health and even in the face of pay cuts due to the Covid-19 crisis. According to reports, in July, two leading Air India pilot unions said in a letter to CMD Rajiv Bansal that 55 pilots had already contracted the virus. In an internal circular dated July 20, the airline noted that some of its employees had died due to the disease.
The national carrier has had a rich history of national service, be it taking an active part in evacuations from the Gulf in 1990 after Iraq invaded Kuwait that led to the First Gulf War, or evacuations from strife-torn Yemen in 2015, among others.
Despite its national service, Air India has been hobbled by enormous debts. Image courtesy: Twitter/@IndiainThailand
According to reports last year, Air India witnessed a record loss of Rs 8,556.35 crore in 2018-19 and had not seen profits since its merger with Indian Airlines in 2007-08. It is surviving on taxpayer money.
The airline was put on the block on January 27 and the initial deadline for submission of bids was March 31. It was first extended to June 30 and then to August 31. It was again extended to October 30 in view of the situation arising out of the Covid-19 pandemic. Now, the new deadline has been set as December 14.
The government is looking to offload its entire stake in the debt-ridden carrier, including Air India’s 100% shareholding in Air India Express and 50% in Air India SATS Airport Services. Air India and Air India Express together currently have over 150 planes and connect numerous domestic and foreign destinations. Air India boasts of wide-bodied aircraft and long-haul routes. If the Air India employees are indeed successful in their bid, it would be another case of the underdog taking on the might of a giant (possibly Tatas or some other entity, in this case) and winning.