The SIA pullout and larger messages

By C. R. L. Narasimhan

The recent decision of Singapore Airlines (SIA) to pull out of the bidding for Air India though widely expected, has once again drawn attention to the frailties of the disinvestment process. There are messages larger than those applicable to just the two domestic national carriers.

It may not be a coincidence that Indian Airlines too finds itself without a worthwhile suitor. For AI, of course, there is still the possibility of the House of Tatas going ahead either with another airline or on their own. But whatever course they adopt, it is clear that for now there has been, as Mr. Arun Shourie, the Cabinet Minister in charge of Disinvestment, puts it a setback. Not just to the two airlines but to the entire process of public sector sale.

Two points are relevant here. One, the set back in the form of the SIA pull out occurred after AI's sale process has meandered past almost a dozen stages. These include, apart from the cabinet decision to proceed with the airline sale, technical processes such as the appointment of global advisers, inviting bids, short- listing the bidders and undertaking due diligence.

All those stages are felt necessary to ensure a fair and equitable process. But it has inevitably been a tedious process and one that permits lobbyists of all hues to have a field day. Some of the early bidders dropped out. And undoubtedly AI's image and value too have been eroded under the onslaught of lobbyists and other pressure groups.

Second, the public finance angle - of the disinvestment process contributing to the bridging of the fiscal deficit - has been relegated to the background at least in the case of the two airlines. Even as this year's budgetary goal of Rs.12,000 crores under PSE receipts looks daunting at this point of time, nobody is betting on a windfall through the sale of AI and IA.

Understanding the intricacies of the sale process has taken precedence over the purely financial aspects of getting a good price. Not that the latter is unimportant. The valuation and the sale consideration will be as controversial as ever, much more than the highly surcharged Balco sale. But at this stage it is more a question of identifying suitable buyers for the two airlines. As the debarment and the subsequent pullout by the Hinduja's show, much more than just financial strength is needed to qualify as a bidder.

Too many conditionalities?

The flip side to prescribing so many conditions is that very few will last the obstacle race, a point amply proved in the case of AI even before the SIA pull out. It would have been a tough decision to hand over to the sole surviving bidder, the Tata-SIA consortium. Now everything seems to depend on what the Tata's would do to keep their interest alive. Further delay seems inevitable.

The Government says it is not contemplating any other method for privatising Air India, a view that will be sorely tested as delays mount and the airline's existing financial constraints get aggravated. A government spokesperson has said that some delay was inevitable. The British privatisation programme also suffered early on. In India, everyone is on a learning curve as far the PSE sale process is concerned. It would be good if the early lessons are grasped quickly.

The first is to understand and deal with the influence of lobbying. It is naive to think that lobbying will have no role in a PSE sale. The country's civil aviation policy itself is opaque and has the stamp of lobbying all over. It was always on the cards that various pressure groups would be at it once the Government's decision to sell the airlines became public. As a general rule, the Indian policy psyche has been conditioned to keeping out new players especially those who bring in healthy competition. Note, for instance, how the domestic airline scenario is charecterised by just two airlines some eight-nine years after it was ``opened up''.

The entry level norms fixed have been such that promoters having the remotest of connections to the airline business entered. Only one of the new entrants Jet Airways has survived and prospered. The Tata-SIA combine's well publicised plans for a domestic airline floundered in the face of sanctioning delays. That there would be opposition once the two joined hands for taking over the international carrier AI was a foregone conclusion. True other bidders were also maligned or disqualified. But AI-SIA bid seemed to have the best chance for success. Fortunately, the Government appeared capable of judging the issues in the correct perspective. But the withdrawal of SIA shows that lobbyists do have some clout. But it may be premature to attribute the latest setback solely to the lobbying by vested interests.

Commercial considerations matter too

For instance, the international economic slowdown has been a contributing factor, a point acknowledged by the SIA spokesperson. Moreover for some weeks now there has been speculation as to whether the airline would rather concentrate on its existing stake in Australasia instead of getting into India. Ultimately, the decision not to go ahead with the AI seems to have been based more on commercial considerations. The message for the Government here is that the PSE concerned must be commercially attractive in terms of global benchmarks.

Finally, Indian PSEs have to be sold with lot more savvy. Lobbyists can do minimal damage if, for instance, AI is seen to be a successful operation. Instead, all the negatives of the airline have been thrust into the forefront. Its MD was suspended recently. The interference by the Civil Aviation ministry in its day-to-day working has been substantially highlighted. Conceded that AI or for that matter any other PSE cannot be ``revalued'' on the basis of a PR exercise alone. But then the Indian public sector has never been allowed to project itself. At the critical time of selling the individual units, this handicap will surely haunt the decision-makers.

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