This Is Your Captain...

Who will buy the Maharaja's new clothes? In other words, who will clean up Air-India, a cash-strapped company bursting at the seams with 23,000 employees, an airline whose destinations have dwindled from 32 over the last decade to 19 and passenger share has fallen from an impressive 48 per cent in 1980 to a lowly 17 per cent this year, an airline which does not fly to even 30 per cent of the routes it signed on for in bilateral agreements because half of its fleet (15) is over 17 years old? This is an airline which openly admits that its marketing network is crumbling and a sizeable portion of its earnings are eroded because of government regulations stipulating automatic upgradation of politicians and bureaucrats and near-free tickets for their spouses.

With the Tatas and the Reliances and the itcs which may be interested in taking a shot at buying Air-India, there's also an unusual bidder in the auction. To be precise, 450 of them. The Indian Pilots' Guild (ipg), the 450-member representative body of Air-India and Indian Airlines pilots, seeks to acquire management control come sell-off time.

"As of today, we do not know the government's intentions. But there need not be any raised eyebrows about our bid because we feel we can turn the airline around and make it profitable," says ipg general secretary Capt K.R. Singh. Singh and his colleague Capt D.K. Ghosh told Outlook that the ipg was inspired by the pilot-led takeover of US major United Airlines in 1994. The bidders had acquired 55 per cent equity in the airline. And United Airlines has gone from strength to strength since then under the stewardship of Rono J. Dutta. "It's a unique success story. And there's another lesson here too - that of the collapse of Eastern Airlines in the US where employees had a minority stake and could not prevent its liquidation by the majority stockholder," adds Capt Ghosh.

Aviation sources say both civil aviation minister Sharad Yadav and his officials initially viewed the ipg bid with scepticism but have now developed some interest following ipg's simultaneous negotiations with as many as three financial institutions and industrial groups like the Tatas and Reliance. It's highly unlikely, though, that the Tatas - who have already formed a core committee for aviation projects and even agreed on a soft agreement with Singapore International Airlines (sia) - would be interested in a deal with ipg. Also, it's not clear whether financial institutions will provide the required amount only because experienced pilots are seeking management control of their airline. However, industry insiders admit that Reliance - whose managing director Anil Ambani recently met Yadav - could possibly emerge as a dark horse in the race. A significant portion of aviation fuel used by aircraft in India could come from the petrochemicals giant's Jamnagar refinery.

The ipg appears serious, at least on paper. It's not just deliberations with business houses and financial institutions, the ipg last week began a massive campaign among MPs (who have congregated in Delhi for the monsoon session of Parliament), distributing information dockets. Interestingly, some of the issues raised by the ipg revolve around the security factor (examples have been cited to highlight the importance of a national carrier during any emergency operations as in MalŽ when Air-India flew hundreds of troops and even tanks to thwart a coup bid in the island nation). The ipg is also sceptical about the accuracy of the airline's valuation that investment banker Morgan Stanley has done at the government's bidding. The ipg also points to what it claims to be continued financial mismanagement in the ailing airline. The pilots claim that the $4.6 million that Air-India recently sold three Boeing 747-200s for was a pittance. They allege that the buyer recouped the entire money it had parted with by selling only the engines and raked in another $4 million by disposing of the aircraft bodies.

"We have inside information that Morgan Stanley's valuation could be around Rs 13,000 to Rs 15,000 crore. And that is way below our estimates of Rs 22,000 to Rs 25,000 crore. Now anyone can acquire a significant 26 per cent stake in the airline for a song at Rs 3,000 crore and then sell the same for 10 times the amount invested," alleges Capt Ghosh. The fliers seem to have done their homework.

Their note also highlights an issue which many bureaucrats have publicised over the years while narrating the woes of the national carrier: old aircraft. The ipg says it is not old aircraft but a tiny fleet which is behind most problems the airline is facing. As of now, Air-India has four 23-year-old Boeing 747-200s, three 17-year-old A300B4s, six five-year-old Boeing 747-400s and two 11-year-old Combis. The pilots say Air-India's ageing fleet is no worse than those of successful airlines like British Airways which has seven Concordes of over 20-year vintage, 15 Boeing 747-200s that are 19 years old and 14 Boeing 737s which are 16 years old. German carrier Lufthansa has 18 Boeing 747-200s which are over 16 years old while Dutch airline klm has 10 Boeing 747-300s which are 15 years old. Japan Airlines has as many as 54 older generation aircraft, including 13 747-200s which are over 21 years old. "And these are all profitable companies," reminds Capt Singh.

But does the ipg have a reasonable chance of pulling off a management takeover of the Maharaja? Where does the battle stand? Aviation experts say the ipg will find it very difficult to win against the big players in the game. Despite keeping a low profile, the Tatas and Jet Airways (with a strategic partnership possibly with British Airways or Air France - the latter having openly said it was interested) continue to be the front-runners in the race.

Interestingly, Jet Airways lobbyists have been telling the civil aviation ministry that sia has already got a foothold in the Indian market through its recent acquisition of 49 per cent stake in Richard Branson's Virgin Atlantic (which will be starting flights to London very soon). Jet's PR managers have also tried to bring to the ministry's notice how the sia - which has already cornered more than 70 per cent of the Southeast Asian and Australian markets (where it is now starting a domestic airline in collaboration with Virgin Atlantic) - was eyeing the Indian skies because of its requirement of a large number of hubs to station its aircraft (currently over 100).

At the moment, the ministries of civil aviation and disinvestment are waiting for the Morgan Stanley valuation to come in. And the true picture will emerge once the bids are called. Only then will it be clear who the interested parties are and how much funds they are willing to commit or raise for the takeover. But one thing is certain: the pilots are serious.