Story ID: 
Indian Government Looks To Divest Air India
By: Neelam Mathews
Caption: The significant employee rolls are a deterrent for many buyers, analysts say.
Word Count: 453
The Indian government on March 28 released a global invitation of expression of interest (EOI) for strategic disinvestment of Air India through transfer of management control and sale of 76 percent equity share capital. It includes Air India's shareholding interest of 100 percent in Air India Express and the 50/50 joint venture, AISATS. Observers expect the May 14 deadline to be extended as bidders find their queries caught in a labyrinth of complex internal processes, the major issue related to whether some 38,000 staff come with the package. The goal is to close the deal by year-end.

While the government’s intent to privatize Air India is clear as it passes a $5 billion debt to the future bidder, retaining AI employees for a specific timeframe remains the most concerning issue, AIN has learned, as potential bidders evaluate the cost involved in retaining 38,000 employees.

Some analysts believe this is a sticking point for prospective buyers. “There is no clarity in the EOI regarding this subject," said a consultant involved in the process. "This needs to be addressed in black and white. An airline bidding for Air India will need to optimize its present employee work base. I can only see retaining captains that are a rarity in India.” He added that with unions serving airline employee members, no new company wants to “start on the wrong foot.”

The cost of staff to the new buyer “is as unfair as it has been on the government of India, one of the major reasons for its massive losses. The new buyer must enjoy the absolute right to retain only those needed, but on the other hand there should be a fair voluntary retirement scheme for those not being retained,” aviation analyst Vipul Saxena told AIN.

India's government has acknowledged the issue and sought to allay concerns of the employees. “We are going to carve out an employee stock ownership plan (ESOP) from the 24 percent stake the government retains. That way employees will also own the new Air India. There will be other important safeguards for protecting employee interests that will be spelled out in the request for proposal,” Jayant Sinha, minister of state for aviation, told the local Times of India daily. An ESOP is a qualified defined-contribution employee benefit plan designed to invest primarily in the stock of the sponsoring employer. 

Air India's staff numbers have been characterized as "excess baggage," but that's not always the case, according to Vishok Mansingh, CEO of regional airline TruJet: “Excess staff is not a big issue. Air India has an aging population, 20 to 30 percent of whom will retire in the next five years. The rest can be given a voluntary retirement scheme.”