Air India sale: In their bid, the employee consortium seeks to prove dissenters, and history, wrong
Money Control
DECEMBER 17, 2020
By PRINCE MATHEWS THOMAS
The employee consortium bidding for Air India has raised curiosity, with many a question that have remained unanswered. It is also up against history, with few similar buyouts of airlines by their employees turning out to be fruitful.
The consortium, led by Meenakshi Malik - Air India's Commercial Director - has manged to get the support of 219 employees. "It's not many, considering that Air India has over 10,000 employees," says a senior official from the industry.
It doesn't seem to have the support of pilots and crew. The two pilot unions - Indian Commercial Pilots' Association and Indian Pilots' Guild - advised its members 'not to take part' in the bid, in a letter that was sent out about 10 days before the December 14 deadline for suitors to submit their expressions of interest.
"In this regard all pilots are advised NOT TO acknowledge or participate in the process initiated by the management official till the disproportionate 70% Pay Cut for Pilots vis-à-vis Air India’s top Management officials (10%) is addressed," the letter said.
The All India Cabin Crew Association gave a similar reason for not supporting the bid. It further noted, in its letter to the Air India Chairman Rajiv Bansal.
"The AICCA had proudly supported the employee buyout bid for Air India at that time by the IPG, during the government of our PM A.B. Vajpayee, and perhaps in better circumstances the cabin crew may have considered it. But with more than (Rs) 1400 crores of employees arrears outstanding, it has become impossible."
Moneycontrol reached out to pilots and crew members of the airline. None was part of the consortium.
Not that Malik seems to be banking on their support. Pointing out that there are more to Air India employees than just the pilots, the senior executive said, "We have got support from employees across ranks and department. Right from a peon to a Director," she told Moneycontrol.
Malik, however, declined to give further details on the 219 employees. She also added that the consortium was now closed, and won't take in any more employees.
The employees, each of whom is contributing Rs 1 lakh to the bid, have proposed to acquire 51 percent of the airline's stake. The rest will be held by a financial partner. Malik declined to give details of the partner.
"It is not a good gamble," is how a senior official at Air India put it. He isn't part of the consortium. "Too many cooks will spoil the curry," he added.
But Malik has maintained that none understands the airline better than its employees. "We know the airline inside out, we know where the problems are. We’re not bidding to win or lose, we’re doing it because we believe we can run the airline well," she had told Bloomberg on December 14.
The consortium is up against Tata Sons, which seems to be the favourite right now. And also against NRI entrepreneur Laxmi Prasad, whose US-based fund Interups Inc has given an open invitation to Air India employees to join its bid. Laxmi, in his interview to Moneycontrol, said that he is willing to give the majority shareholding to the employees. He is also reaching out to Malik, for her support, the entrepreneur had said.
Interestingly, it's not just Air India employees who are at present looking to take over the management of their airline. Something similar is happening at South African Express Airways, the country's state-owned airline. In September, says a local report, hundreds of employees came together to acquire the airline.
In the past, there have been more examples of similar bids failing to take off, than of succeeding. A report by Binit Agarwal in Law School Policy Review, lists three unsuccessful ones - United Airlines, Eastern Airlines and Kiwi Airlines.
In the first two cases, the takeover started off well as the employees agreed a cut in their wages in return of the stake. But the advantage fizzled out, once the stakeholders were back at the table to negotiate next round of changes in salaries.
Interestingly, Kiwi Airlines was founded by former employees of Eastern Airlines. While it became popular for its service, the airline failed to make profits and was soon grounded.
So does the aviation industry have no instance of a successful attempt by employees to buyout their company? There is one, but not a perfect one, of an air charter provider Titan Airways. Here, the CEO and founder led a management buyout of the investors.
Back in India, employees of Jet Airways, which is now nearing the end of the process to get new owners, had also mounted a bid. They formed a consortium with the UK-based AdiGroup, but failed to put in a bid.
All eyes are now on the Air India employees, as they - like the rest of the suitors - will now need to submit a physical bid within 15 days of the December 14-deadline.
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