Disinvestment: Flight Of Fancy?

DISINVESTMENT
Flight Of Fancy?

There's a joker in the pack bidding for Air India. it's the Indian Pilots Guild. Just why does it think it has a chance?

By Suveen K. Sinha

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On the ninth of November, a day before the deadline for submitting expression of interest for a stake in Air India was to expire, the Department of Divestment officials received a letter bomb-of sorts, though. No, they weren't surprised to discover that the London-based steel czar L.N. Mittal, besides the Hindujas, had bid for Air India, or even that Reliance Industries-long expected to be a serious rival to the other major bidder, the Tatas-Singapore Airlines combine-had decided not to bid.

Rather the babudom's collective jaw dropped because the Indian Pilots Guild-which, for a month until then, had been threatening to stake its claim for running Air India-actually sent its intent letter. More so, the letter had voluntarily detailed the sources of finance (the 40 per cent equity it is bidding for could cost upwards of Rs 4,000 crore), the name of the technical collaborator, and the reasons why it was best suited to run the airline.

Is it a bluff?

The Guild's case

Annual employee cost at 22.65% of operating revenue, or Rs 1,100 crore, can be construed as equity

The employees can raise additional equity worth Rs 1,000 crore

Some banks and financial institutions are willing to back the Guild

The employees can push turnover past Rs 10,000 crore and operating profits above Rs 1,000 crore

Unlike the other bidders, the employees won't need a lead time.

The Guild is a little vague about how it will rustle up the $225 million a bidder needs to show in its balance sheet to qualify for bidding. For one, being a pilots' union, it has no balance sheet. The Guild's President, S.P. Verma, however, contends that the provident fund of the employees-Rs 1,000 crore at last count-should be treated as their equity. Says Verma: ''Money in the balance sheet is a book entry. It's not clear whether the shareholders of a bidder have approved use of that money for (bidding).''

What the Guild is also hardselling is the novelty of its bid. According to Verma, the case of employees (or pilots) bidding for their employer airline is unprecedented in Asia. Elsewhere, the world's largest airline, United Airlines, is controlled by its 83,000 employees. The Guild wants to be given the first right of refusal. Why?

The government's equity is a bare Rs 153 crore, whereas the dividend paid out so far stands at Rs 220 crore. In other words, whatever value has been created in the enterprise is due to the employees. Not many agree with the logic. Says Harish Malik, former Air India Commercial Director and Aviation Consultant: ''I am not sure the government will accept this logic.''

The Guild does not lack a plan, though. Says Savio Gomes, CEO, Enterprise Value, advisors to the Guild: ''We can turnaround the airline in 24 months,'' although the how of it is not so evident. The Guild is in talks with Rabo Bank, Deutsche Bank, and some other international financial institutions to cobble together a package for employee equity ownership.

There are several air pockets in the Guild's flight path. For one, it does not formally represent all the employees of Air India. Then, it's not clear where the Guild's money will come from, or how it plans to convince the government when there are experienced bidders like Tata-sia, Kotak Mahindra-British Airways, Emirates, and the Air France-Delta-Aero Mexico-Korean Air (the Sky Group) combine. For, flying a plane is one thing. And flying an airline, quite another.

-Additional reporting by Ashutosh Sinha

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