Wanted: a fair partner with sound finance, managing expertise, and (preferably) a strong lineage.

By Suveen K. Sinha

Everyone loves happy-endings. And what could be happier than the return of the national carrier Air India to the Tata fold. ''It'll be nice to be back in Air India,'' mused Ratan Tata, while announcing India's largest business house's desire to become what he termed a 'strategic partner' in Air India. ''I wish he were here today.'' The 'he' referred to was J.R.D. Tata, Ratan Tata's predecessor as the Chairman of the Group, the man who piloted the first Tata Airlines flight from Karachi to Mumbai via Ahmedabad in 1932, and the Chief Executive who headed the airline till its nationalisation (and rechristening) in 1948.

Well, Tata may have been the only one to have made his intentions public, but he certainly isn't the only one in the race (although given the GoI's stately divestment pace it can hardly be called that). There are the Ambanis of Reliance, if one were to go by Arun Shourie, the candid Minister for Disinvestment. Then there is the usual clutch of foreign airlines. Singapore International Airlines (SIA), which made an abortive bid to build a domestic airline with the Tatas, and two others whom Ratan Tata refuses to name, are not averse to being part of the Tata consortium. Virgin, Tata clarified at the press conference, wasn't one of them.

That doesn't rule out Richard Branson's airline though, which already has a load-linked seat-sharing deal with Air India. ''We will be watching the privatisation process closely, very closely... And when it happens, we will be an interested party,'' Branson told BT during his visit to India earlier this year. Delta, Air France, and KLM Northwest are said to be looking for Indian partners.

Swiss Air, and British Airways (people BT spoke to claimed) weren't averse to the idea of a stake in Air India. And BT learns that Indian Pilots' Guild is all set to submit an expression of interest. That's an impressive list of suitors for a lame duck.

So, What's In It For The Suitors?

It isn't sentiment that is behind the Tata announcement. The cold calculus of reason is the moving force fanning the interest of the Tata Group and other companies in Air India. Aviation-although the performance of several domestic carriers may not show it-is a profitable business. And some of the facts now being aired as AI's weaknesses, are, in truth, (air) pockets of opportunity. The airline uses just around 60 per cent of routes that are rightfully its own under bilateral agreements (routes are allotted by two countries to their respective 'flag carriers' on a reciprocal basis, and if one country, like the US, does not have a flag carrier, the allocation is shared among several designated carriers).

Fleet constraints have forced Air India to discontinue some flights to UK, and it doesn't service Frankfurt-both lucrative sectors. This will come in handy for someone like SIA, with its immense financial strength, and its huge fleet that can be utilised better if it can make use of Air India's bilateral rights.

Then there is the huge infrastructure owned by Air India, which puts it in a unique position to provide handling services to most foreign airlines touching down here. For instance, at the Chhatrapati Shivaji International Airport in Mumbai, practically all the buildings are either owned by Air India or taken by it on lease from Airports Authority of India (AAI). ''It's some of the less noticed rights and privileges of Air India that make it lucrative for a strategic investor,'' says Ranjit Walia, a lawyer specialising in aviation. Along with Indian Airlines and AAI, Air India has exclusive rights to provide aviation-linked security services. This is a big business in many developed countries, big enough for Swiss Air to float a subsidiary to take care of it. Another intangible is India's geographic location.

The intangibles make it difficult to assess the true worth of Air India and an indication will be available only after the GoI comes out with a package on its assets after all the expressions of interest have been submitted (deadline: November 10, 2000).

A Suitable Boy

Choosing the strategic partner, on the face of it, should be a rather simple exercise for the GoI. The chosen one ought to have a balance-sheet that shows enough muscle to make the airline soar again. It must have a network that is vast and, at the same time, one that can be synergised with Air India's. The trend in the global aviation sector is towards alliances: these extend to reservations and ground services and mean lower costs for all members of the alliance. And it will certainly help if the country of origin of the foreign airline that is part of the bidding consortia enjoys good diplomatic relations with India. Indeed, the most likely scenario is that the government divests its stake to a consortium where an Indian company or a corporate group is the dominant partner, although the operations of the airline itself will be looked after by a foreign airline that is the lesser partner. Says Manushi Roy, Deputy Director-General, Confederation of Indian Industry: "A good track record in whatever business they are in is important, as is financial strength.'' If this line is taken, the Tata Group and the Ambanis do have an edge. They do have the brand-cadence (and the coffers) to attract one of the large global airlines as a partner. Still, by making his intention public, Tata may have forced the hand of other companies interested in Air India and gained an edge. His group, after all, runs one of the better hotel chains in the country (a service business like airlines). The Pilots' Guild, too, fancies its chances. Says its President S.B. Varma: "We have the expertise. And when expertise is available in-house, why look outside?" The guild is now looking for an Indian corporate house or financial institution as partner to add financial muscle.

Will The Menage-A-Trois Work?

Although GoI will retain a 40 per cent stake in Air India even after the disinvestment, the bidders are confident that it will give the strategic partner a free hand in running the operations. ''Otherwise, what's the point in choosing a strategic partner?'' asks Tata. But many free market economists believe a total privatisation, like in the case of British Airways, may be a better option.

Some good may come out of the high government holding in a privatised Air India. ''It may encourage the government to retain Air India's monopoly on security services even after the privatisation,'' says Walia.

The immediate task for the strategic investor, however, will be to revive Air India, whose operations have shrunk considerably. Tata, who has served a three-year tenure as AI's Chairman, says it's now an ethnic carrier. He flies it sometimes, but never out of choice.

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