A month since the civil aviation ministry came out with the preliminary information memorandum (PIM) on Air India’s strategic disinvestment.
And over the past couple of weeks, several likely contenders have reportedly backed out from throwing their hats in the ring, claiming that the PIM’s terms are not workable.
So to allay the concerns of prospective suitors regarding at least one condition – which mandates that the selected bidder will have to operate Air India on a going concern basis and at arm’s length from its other business for three years the government has now come up with a clarification.
According to a report the new owner of Air India will be allowed to operate the airline under a holding company. The entity will also be permitted to co-opt its existing airline brands under the holding company to build synergy.
“We had discussions over this clause; the transaction advisor studied airline merger cases and suggested that a holding company structure should be allowed,” a person involved with the process told the daily, explaining, “Suppose a potential suitor has two existing airlines, A and B.
It can then incorporate the two brands and Air India under a single holding company. But a merger of Air India with other brands will not be allowed for the first three years.”
So prospective bidders can now rest assured that all forms of commercial partnership including code share and interline agreements will be allowed between Air India and their existing airline brands if they are selected. “We will clarify these in the pre-bid queries,” added the source.
The report adds that the holding company model has been globally used in airline mergers and acquisitions. For instance, when Lufthansa acquired Swiss International Air Lines in 2005, it formed a holding company, Air Trust, to acquire all shares in Swiss. To date, Swiss International operates as a separate brand.
In India, Tata Sons, which owns two operating airlines Vistara and AirAsia India will likely be all ears at this news. According to reports, Tata Group had recently called the PIM’s terms “too onerous” to consider making a bid.
But in another interview, less than a fortnight ago, Tata Sons Chairman Natarajan Chandrasekaran said that the group would consider if adding another airline to its aviation business would make sense to its business prospects.
Being allowed to now develop synergy with their other brands is a crucial cog in that wheel.
The report adds that the government plans to sells its 24 per cent stake in the flag carrier in phases, preferably through a public listing.
According to government officials, the Department of Investment and Public Asset Management guidelines on strategic disinvestment would make it necessary to include a clause which would safeguard against asset stripping by the strategic partner post disinvestment.
With the deadline for interested bidders to submit their initial proposals for the Maharajah now less than a month away, we will know soon enough whether the government’s new gambit works or not.>