Air India is still unattractive for investors, govt must polish sale offer: Captain Gopinath

But there's an astronomical debt of Rs 23,000 crore that is part of the bid. The ostensible logic here is that the assets are also of an equal amount.

This is where it may become unattractive and more critical and very cumbersome. While the debts are determinate, the assets are not.

Most aircraft are on lease. Other high-value assets including planes, which have been purchased over the years, will be of questionable asset value. There are allegations of corruption and investigations by CBI and other agencies are already in full swing and charge sheets were filed.

Ergo, it will be a task well nigh impossible for the bidders to complete due diligence in a short time frame to get a realistic asset value to be able to make a bid in time. The lease rentals earlier negotiated may also be suspect and may have to be renegotiated. The government cannot deny these apprehensions as it itself has initiated enquiries and is keen to press charges.

It's not late to tweak the final tender conditions. It's only at the Expression of Interest stage. The aviation ministry can announce that it is open to suggestions and that it will modify the tender conditions after a pre-bid meeting.

Even if it's offered as a zero-debt company, the key is to enable quick due diligence to bidders to be able to bid by gaining confidence in what they are buying because it's not easy to assess the huge inventory of aviation assets.

The failed bid of Jet Airways should be an eye-opener. It was impossible for any bidder to get a real fix on the airline's assets and liabilities in a short span of time as many contracts were layered.

The government can do more to attract suitors, widen the competition and realise the best value. Though Air India has lost its sheen, it is still a much-loved brand and has a huge potential value that can be unlocked by the right strategic investor.

A vast domestic and global network to key destinations, assured time slots and space in prized airports with airside access, hangars, engineering backbone and infrastructure, trained engineers and flight crew, bilateral rights and assurance of continued protection of those rights (as was done when airlines such as British Airways, Lufthansa and Qantas were privatised), huge aircraft orders with delivery timelines and revenue of around Rs 25,000 crore, which can be doubled with better management in a short period. All these can ratchet up Air India’s valuation to about Rs 50,000 crore by listing it after 3-4 years with the right restructuring.

Here are some more suggestions that may attract more bidders.

First, the bidding process. It must be a global, open, transparent electronic tender. The shortlisted bidders must first deposit the reserve price in an escrow and the bidding must commence and end within 6-8 hours.

It must not be a closed ‘sealed envelope’ bid, which, apart from being vulnerable to malpractice, won’t get the best price. It should be an open auction where each bidder can increase the bid price after viewing the offer price of other bidders. As Air India is not listed, this is the best way for true price discovery. The Tatas acquired Corus Steel in this manner.

But to get the highest valuation possible, the government will do well to hold pre-tender meetings after the expression of interest is finalised, listen attentively and understand bidder apprehensions before tender documents are finalised. This is key to attracting the highest number of bidders.

The employees' question. This may be the biggest deal-breaker. Air India is overstaffed and the total may be more than 30,000 if you include all the contracted employees.

The new owner must be allowed to retain only the minimum number of employees per aircraft needed as determined by him.  This will be a ‘no go’ item with bidders, as Air India is overstaffed with indiscriminate recruitment over decades.

The staff strength per aircraft in Indigo is around 70 compared with about 470 in Air India. That's nearly seven times higher. And to be fair, the government must settle those laid-off employees through an attractive VRS by selling off some of the real estate assets. It cannot quibble over this.

It's more prudent to do this than be recalcitrant and lose Rs 5,000 crore every year through losses, not to speak of interest on the whopping debt in excess of Rs 30,000 crore after many writeoffs earlier.

Air India’s trained and skilled manpower of pilots, engineers and cabin crew will be definitely needed by the new management. But the latter must have total freedom on this matter.

This will facilitate a competitive playing field so that the company that wins can focus on the airline. The government must remember that no bidder will ever offer a bid with the present level of employee strength.

One last thing can be considered. The successful bidder should mandatorily be made to list Air India on the stock exchange within 36 months of the takeover, prescribing with minimum levels of Indian public holding of the stock so that it continues being looked up to as a National Carrier. It will allay the unfounded fears of selling away the family silver.

If the auction is marketed and managed well, Air India will entice many suitors. And someone will surely be coaxed to take the risk and tie the knot.