Air India sell-off hits turbulence

The UK-based Hinduja brothers are in the running for a stake in Air India

By CNN contributor Shishir Joshi

MUMBAI, India (CNN) -- India's attempt to sell off part of its national flag carrier Air India once again faces turbulence.

The fresh threat comes on two fronts -- from a potential buyer and from the airline's own workforce.

One of the two bidders for Air India, the UK-based Hinduja business group, has attached conditions which the government says are "unacceptable".

And the airline's trade unions are demanding retention of all current benefits.

"A demand for total control by the strategic partner is unacceptable. Even if there remains only one bid, we will go ahead with the disinvestment process provided the offer is higher than the reserve price," India's Disinvestment Minister Arun Shourie told journalists.

Bids invited last year

In May last year the Indian government invited bids for a 40 percent stake in Air India and a 26 percent stake in its domestic counterpart, Indian Airlines.

International airlines Lufthansa, Swissair, Emirates, British Airways, Air France-Delta in combination, Singapore Airlines and the Hinduja group were some of the parties to show interest in the Air India stake.

The government required foreign airlines to link up with a local partner.

"The compulsion for a foreign airline to have an Indian partner forced most airlines to opt out. But what would bother most players is that despite a divestment, the government is likely to continue meddling," veteran aviation expert H. P. Mama said.

The Hinduja group and India's Tata group in partnership with Singapore Airlines are the only two left in the race.

But in a recent letter to the government, the Hinduja group set out several conditions, threatening to withdraw if these were not met.

"In case some of our clauses are not accepted, we will have to seriously review our position," R. J. Shahaney, chairman of Hinduja-controlled Ashok Leyland, told journalists.

A withdrawal by the Hindujas would leave the field open for the Tata-SIA group.

But political opponents in India point out that SIA's majority shareholder is the Singapore government.

They also note that the Hinduja brothers already face a probe by India's federal police, the CBI, over allegations of their involvement in the Bofors arms scandal.

Access given to financial records

Both sets of bidders have now finished inspecting the airline's financial records and sent their comments on a shareholders agreement, spelling out issues including that of management control, to the government.

The Cabinet Committee on Divestment will discuss the Air India sell-off and other divestment proposals later on Wednesday. The eligibility of bidders is set for Friday.

The Disinvestment Minister has assured Air India workers that steps will be taken to "address issues facing the trade unions" who believe the airline's sell-off may lead to mass layoffs and altered service conditions.

Air India, which has a fleet of 26 aircraft and turnover of more than $1 billion, lost money last year largely due to rising fuel costs.

The carrier flies 3.37 million passengers annually to 46 destinations including those with code-sharing carriers. It recently introduced a voluntary retirement scheme for employees, cutting 1500 employees to the present strength of 17,200.

Long-held concerns that the government will continue to meddle in the airline's functioning sprang up last month, when India's Civil Aviation Minister Sharad Yadav suspended the airline's independence-seeking chief.