Concern over status of AI after privatisation

By T. S. Shankar

CHENNAI, AUG. 9. Who will exercise effective management control over India's national carrier, Air India, when it is privatised is the question that is uppermost in the minds of aviation watchers.

The two other important issues that are of concern relate to the status and shape of the privatised Air India and the role it would play in the nation's economy. These will determine whether Air India will become a subsidiary of a foreign airline or of foreign interests or whether irrespective of its partial privatisation, it will serve the national interests as the flagship international airline of the country.

The Government announced recently, a proposal to reduce its current 100 per cent shareholding in Air India to 40 per cent and sell 40 (26 + 14) per cent to a strategic partner which can be a joint venture between an Indian and a foreign equity including a foreign airline. Of the balance 20 per cent, it is proposed that 10 per cent will be sold to employees and 10 per cent to domestic financial institutions and investors in the Indian capital market.

Many countries have recently reduced the Government holding in their national carriers or have formulated policies in that direction and have prohibited foreigners from having a majority share of the equity and from assuming management control of the airline as seen in Australia, China, Mexico, South Africa, Singapore, Taiwan, Thailand and the United States. This clearly demonstrated that universally, management control and majority equity participation by foreign nationals, including foreign airlines, in the national carriers are not palatable for several reasons viz - strategic, national, defence, political and economic ones.

A 26 per cent shareholding, as per the Indian Companies Act, will enable the foreign partner to exercise a veto power at the AGM which in turn will enable the foreign partner to veto any special resolutions even though such resolutions may have the support of the remaining majority shareholders; A 26 per cent stake will enable the foreign entity in the Joint Venture/Consortium to become the dominant player since the Indian strategic partner will have a maximum shareholding of 14 per cent out of the 40 per cent proposed to be sold to the strategic partner.

To protect its interests, the foreign strategic partner will also ensure that the Indian partner becomes a minor player within the strategic partnership and not on equal partner in the decision- making process. In view of the Government's intent to give up its role in the day- to-day running of the airline, a 26 per cent shareholding for the foreign partner, will, in real terms, result in the foreign partner managing and administering the airline.

While divesting 40 per cent, the Government must also spell out a broad aviation policy and national obligations to the strategic partner. Only then can the status of Air India as the nation's international airline be protected.

No dearth of talent

At this juncture, key players in the aviation industry underscore the importance of providing 26 per cent stake for the foreign partner, as otherwise, they would not be willing to enter this highly competitive industry on a charity note. ``If the foreign airline does not hold a veto power, then the very purpose of its entry is defeated'', explained another source in the airline industry.It is clear that there is no dearth of talents for reviving Air India. There are Indians available here and all over the world who are capable of undertaking this task. In this context, Indians have proved themselves time and again as being second to none. Two of the world's largest airlines, the United Airlines and the U.S. Air - are both headed by Indians - Mr. Ronu Dutta and Mr. Rakesh Gangwal respectively.

Experts suggest that the strategic partner should be given the right to nominate 50 per cent of the Board of Directors, the Indian partners in the strategic partnership should nominate the Chairman of the Board of Directors and the Indian/NRI investors in the strategic partners consortium should be given the right of first refusal to acquire the remaining 40 per cent equity when the same is offloaded by the Government in future to ensure that at no point of time the foreign partner's shareholding exceeds the limit.

The concerns raised that a 25 to 26 per cent offer in the shareholding will not be attractive enough to lure bids from serious airlines appear to be unfounded. From available indicators, it is known that international airlines of repute like British Airways, Singapore Airlines and Air France have all shown keen interest in bidding for selection as the strategic partner in the partnership with Indian entities including Jet Airways.

The Government should ensure that while Air India is permitted to draw upon whatever world class airlines offer, it does not become an adjunct of any foreign airlines.

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