Government proposes holding company for Air India post sale

The government has come up with a holding company structure that would allow prospective bidders for the loss-hit national carrier to operate the airline as a separate company while carrying on with existing business.

The government expects this to allay concerns of potential suitors about the bidding condition, which mandates operating Air India at arm’s length for three years.

According to reports, the selected bidder will be allowed all forms of commercial partnership between Air India and the bidder’s existing airlines.

“All forms of commercial partnership, including code share and interline agreements, will be allowed. We will clarify these in the pre-bid queries,” he said.

While airlines will be allowed to bring synergy between Air India and the existing brand, it potentially excludes a merger of operations with a group's existing brands.

“We had discussions over this clause; the transaction advisor studied airline merger cases and suggested that a holding company structure should be allowed,” reports quoted a person involved with the process as saying.

“Suppose a potential suitor has two existing airlines, A and B. It can then incorporate the two brands and Air India under a single holding company. But a merger of Air India with other brands will not be allowed for the first three years,” he pointed out.

Since the government has decided to hold a 24-per cent stake in Air India post divestment, it wants successful bidder to operate the airline as a going concern and at arm’s length from its other business so long as the government’s stake remains.

The government has proposed to sell the 24-per cent stake in Air India in phases, preferably through a public listing. However, till such time the government holds a stake in the company, the selected bidder will have to operate Air India as a going concern, separate from other businesses.

Although the Tata Group has not so far expressed interest in acquiring Air India, report say Tata Sons, which has two operating airlines — Vistara and AirAsia India — is among the possible suitors.