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newswatcher
9th Jul 2001, 12:00
From the BBC, over the weekend:

"The Indian Government has disqualified the UK-based Hinduja brothers from bidding for a stake in Air India, leaving just one bidder for the loss-making airline. The blocking of the Hindujas' bid had been widely expected

Analysts expect Singapore Airlines and the leading Indian industrial group Tata to win the day and take a 40% stake in the carrier, even though the privatisation minister Arun Shourie said the bidding process would now be reviewed.

The brothers have faced accusations of involvement in a bribery scandal during the 1980s involving a $1.3bn arms contract with the Indian army which was won by the Swedish weapons maker Bofors. A BBC correspondent in Bombay says the arms scandal has come back to haunt them. Although they deny having done anything wrong, they were disqualified on grounds "based on guidelines relating to law and indictments by regulatory authorities," the minister said.

No price tag has been put on Air India by the government or JM Morgan Stanley, the bank advising on the sale, because of its allegedly vague asset register. Some reports value it at $2.6bn (1.85bn).

However, on Thursday the government said at least two-thirds of the board of directors, the chairman and the managing director of Air India should be Indian nationals.

At 700 employees per aircraft, job losses seem inevitable following the sell-off. And it said it would retain the right to nominate three board directors, with a further four being appointed in consultation with the buyer of the 40% stake. Such insistence on retaining control could have a negative impact on the airline's market value.

Even so, last week India's government said it would go ahead with the Air India sell-off as long as the reserve price was met, even if there was only one bidder left in the race.

Our correspondent says the loss-making national airline has become some kind of a litmus test of India's commitment to reforms.

If the sale is blocked for any reason, questions are certain to be asked about the ability of the governing coalition in Delhi to push through with its reforms agenda.

But not everybody is happy with the Air India privatisation process. India's main opposition Congress Party, as well as the left parties, have said they will oppose the sale of Air India if there was just one bidder.

The airline's true worth does not lie in its 25 aircraft, or even in its 18,000-strong workforce, which at more than 700 workers per plane is double the industry standard. Job losses are expected after the sell-off.

Investors will not be impressed by the company's bottom line either, given that Air India has lost money for seven years and has amassed 38bn rupees in debt. But underlying the balance sheet are a number of valuable assets.

The airline has bilateral rights to fly to 96 destinations, but only uses 19 because of its small fleet. These rights, which include London, New York, Paris and Chicago, can be leased to other carriers.

The new stakeholder would also gain a strategic hub, access to a huge and growing Indian travel market, a popular brand name and large, undisclosed land holdings.

In addition, the Indian government has committed to further investment saying it wants to double the number of operating aircraft in the next five to seven years.

Foreign airlines can bid for a maximum of 26% of Air India, while 14% must be held by an Indian partner.

Employees and financial institutions will be offered 10% each, with the rest being retained by the government.

If the Tata group gained control of Air India, the carrier would revert to its original owner. Tata pioneered aviation in India in the 1930s, but the airline was nationalised and renamed Air India in 1953."