Asia Times: Sale of Indian Airlines litmus test for privatization


	March 30, 2000	atimes.com

India/Pakistan

Sale of Indian Airlines litmus test for privatization

NEW DELHI - In what is certain to be seen as a landmark decision, the Indian government has decided to sell and privatize a number of state-owned companies. Until recently, privatization was a taboo word and the government was content to sell small lots of shares in companies as part of the disinvestment policy. Many investors found disinvestment a good beginning but it did not change the manner in which the companies were being run. The management did not change - in fact, nothing changed very much. Now, the government has decided to make a new beginning.

State-owned Indian Airlines (IA) is being offered for sale and the government's stake in the domestic national carrier will be reduced to a minority. A key cabinet committee on disinvestment has decided to offload 51 percent of government equity in Indian Airlines. IA's shares are to be sold to a strategic partner, financial institutions, public and staff. The joint venture partner will be offered a 26 percent stake and will have a free hand in running the airline.

However, the strategic partner will not be allowed to hold more than 40 percent foreign equity, officials says. The partner will not be a foreign airline either. Government policy bars foreign airlines from taking a stake in a domestic airline company.

India's two major private airlines are in no hurry to take up the government offer. ''We will not be interested in picking up equity in IA,'' said a Jet Airways spokesperson.

''Its ageing fleet does not match our younger fleet,'' said Sahara Airlines' chief operating officer Parvez Damania, ''Right now we have not given a mind to it.''

Analysts says the government may be keen to ensure that its decision is not perceived as ''a sell-out to foreign interests''. But can foreign ownership be avoided? ''For all the safeguards built into the proposal, the eventuality of foreign ownership is a distinct possibility,'' wrote the Business Line newspaper. It said: ''After all, the strategic partner might provide a policy figleaf of domestic ownership even as it holds equity in trust for foreign interests.''

On the other hand, doubts have been aired as to whether the private bidder will be allowed to run the airline freely with the government retaining a 49 percent stake. Officials say a shareholders' agreement will be drawn up to define the role of the partner, keeping in view national security and possible emergency requirements. The government will eventually reduce its stake in the airline to just 26 percent.

Anil Baijal, managing director of Indian Airlines, said privatization will make the company more competitive and efficient. But there are many curious aspects of the government's decision on IA. It is insisting that the buyer or strategic partner should not be an airline. It stands to reason that people best qualified to run an airline are those already running one. What defies logic is that the government is willing to allow foreign airlines to buy a stake in Air India, the international flag carrier, which is also to be privatized. In India, there are many critics of the government's plans to privatize Indian Airlines - and their number will grow. The socialist mindset has yet to mellow in India.

This should not distract from the fact that the decision to privatize state companies is a major step forward that comes after a decision last year to open up India's insurance sector. It is not clear whether many international consortia will be keen to pick up a stake in Indian Airlines, which is grossly overstaffed, has a big, ageing fleet and a union that is opposed to privatization. IA has 22,000 employees - or nearly 400 for each aircraft it operates. It has a paid-up capital of Rs1 billion rupees ($24 million) and a fleet of 56 aircraft - but close to 26 of them need to be phased out in the near future.

(Asia Pulse)

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�1999 Asia Times Online Co., Ltd.

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