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Bidding for 40 per cent Air India pie closes Friday

The government's sale of a 40 per cent stake in Air India (A-I) enters its second lap on Friday, the deadline for bidding consortia to finalise partners and submit detailed business plans.

The government is also selling a 26 per cent stake in Indian Airlines (I-A), a primarily domestic carrier.

Air India, which racked up losses totalling Rs 10 billion over the past five years, is saddled with Rs 38 billion in debt and a massive workforce -- 680 employees per aircraft, twice the industry average.

Still the sale has attracted considerable interest because of India's strategic location and the potentially huge travel market that the world's second most populous country represents.

Though by global standards Air India is a small airline with just 24 aircraft, it has valuable unutilised flying rights and massive land assets, according to analysts.

Air India also plans to use proceeds from the sale of its hotel-chain subsidiary, the Hotel Corporation of India, to retire debt, making it a more attractive acquisition.

New Delhi is selling a 40 per cent stake in Air India -- 26 per cent to a strategic foreign partner and the other 14 per cent to an Indian company.

The government is also selling a 26 per cent stake in Indian Airlines, but has restricted buying eligibility to domestic companies, non-resident Indians and foreign companies with majority ownership by expatriate Indians.

Foreign airlines are barred from investing in Indian Airlines, which draws two-third of its revenue from domestic routes.

THE BIDDERS

A number of major airlines head the list of suitors for Air India, a former global carrier whose route network has shrunk rapidly the past decade as financial and labour problems mounted.

Singapore Airlines has teamed up with the Tata group, one of India's most powerful conglomerates.

Air France and Atlanta-based Delta Airlines, the third-largest US airline, have also paired up to offer a joint bid.

Others in the fray include Dubai's Emirates airline, which has an equity stake in neighbouring SriLankan Airlines, and the UK-based billionaire Hinduja brothers.

London-based steel magnate L N Mittal has withdrawn from the bidding, an Indian financial daily reported on Wednesday. British Airways and Qantas were the technical advisors to the Mittal-led bid.

FINALISING PARTNERS

On the eve of the deadline, the final composition of only one bidding consortium is known -- the Singapore Airlines/Tata alliance.

Others as recently as last week were still trying to cobble together airline-Indian partner combinations enabling a bid for the full 40 per cent stake.

Delta Airlines and Air France have been talking to at least seven Indian companies in their search for a domestic partner.

The Hinduja brothers on the other hand were looking for a partner airline, only one of the problems they face.

Three of the Hinduja brothers are currently facing trial in India in connection with the Bofors arms scandal. One of the brothers was also at the centre of a controversy in Britain over the handling of his application for a British passport by Peter Mandelson, a close friend of Prime Minister Tony Blair.

INDIAN AIRLINES

The Hinduja brothers are also one of the only two declared bidders for Indian Airlines, the domestic carrier. The other bidder is the Indian consumer electronics company Videocon International.

Indian Airlines, which has a fleet of 52 aircraft including 30 Airbus A 320s, posted small profits for the three years to last March. But a crash in July, which killed 58 people and raised questions about the state of the airlines' ageing fleet, has since pushed the carrier into the red.

It posted a net loss of Rs 1.37 billion for the past April-October half, against a profit of Rs 143.5 million in the same period a year earlier.

Private-sector rival Jet Airways, with a young fleet of 25 Boeing 737s, has been snapping at Indian Airlines heels, eroding its dominant market-share.

Indian Airlines has often cited its social obligations such as flying uneconomical routes and bureaucratic interference in decision-making, especially regarding fleet renewal, as reasons for its poor performance compared to Jet Airways.

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