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The Air India ramp at Mumbai CSMI Airport. Photo by and copyright Devesh Agarwal.
The Air India ramp at Mumbai CSMI Airport. Photo by and copyright Devesh Agarwal.

Why are suitors backing out of Air India bidding?

Two weeks ago, the Government of India released its preliminary information memorandum (PIM) inviting expressions of interest on their strategic divestment of national carrier Air India. The last week has seen, three of the most likely suitors indicating their lack of interest in bidding for the beleaguered airline.

Download a copy of the PIM at the end of the article

A week ago, April 5th, IndiGo, India’s most profitable airline, and the only organisation to have publicly stated its interest in acquiring the Maharaja, announced it was no longer interested.

Aditya Ghosh, President and Whole Time Director of the airline said “From day one, IndiGo has expressed its interest primarily in the acquisition of Air India’s international operations and Air India Express. However, that option is not available under the Government’s current divestiture plans for Air India. Also, as we have communicated before, we do not believe that we have the capability to take on the task of acquiring and successfully turning around all of Air India’s airline operations,”

Two days ago, Jet Airways, India’s largest private carrier, announced it would not bid. Their Deputy CEO & CFO Amit Agarwal said “We welcome the government move to privatise Air India. It is a bold step. However, considering the terms of offer in the information memorandum and based on our review, we are not participating in the process,”.

Yesterday, came the biggest bombshell of them all. Reuters reports, the Tatas, who owned Air India prior to its nationalisation, and considered the strongest contender for the airline, is unlikely to consider a bid for the state-run carrier as the government’s terms are just too onerous.

Why are suitors backing out of Air India

There are two schools of thought on why suitors are backing out of bidding for Air India.

Terms not acceptable

One school blames the government terms, which are just not acceptable.

As per the PIM, the government has stipulated the winning may be required to publicly list Air India. Keeping in mind strong employee backlash, there are conditions in the PIM designed to safeguard employee interest. The government has also mandated that the winner cannot merge Air India with an existing business. Each of the three suitors IndiGo, Jet and the Tatas already operate airlines with a strong brand identity of their own. Lastly, the amount of debt the government expects the winner to absorb is high, to say the least. It is possible these suitors do not see enough value in Air India.

Air India buyer already decided?

The other school of thought is from the conspiracy theorist perspective.

The winner has already been chosen by the government, and the three strong suitors are publicly backing down to clear the way, and make sure the “pre-chosen” can use the lack of interest to tweak the terms and price to suit them.

Going forward

With the big three suitors backing down, the government’s ambitious plans are at imminent risk of derailing. It behoves the powers that are, to sit down with potential bidders, understand their concerns, reasons for backing out, and changing those conditions that are too onerous.

Share your thoughts

What are your thoughts on the developments over the last two weeks? Which school of thought do you believe in? Do you have an alternate view? Share your thoughts via a comment.

Download a copy of the Air India divestment preliminary information memorandum.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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