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Abu Dhabi, UAEMonday 18 June 2018

'Air India's turnaround is feasible within three years'

With the right management, board and business plan the airline could soar to new heights, an analyst says

Paramprit Bakshi, the vice president at aviation advisory Capa India, expands on Air India's move towards privatisation.

A few of the key players seem to have dropped out of the race for Air India. Is this worrying?

We think that irrespective of that, significant interest is expected from financial and strategic investors. Some of the players may also revisit their initial discussions once the final document is prepared by the government taking into account the stakeholder inputs. It's possible further changes could be made to make it acceptable to bidders to take the transaction forwards.

Once a buyer steps in, how successful are they likely to be at turning around Air India's fortunes?

Subject to what the final terms and conditions are, we believe Air India's turnaround is feasible within three odd years with the right board, the right management, the right business plan in place.

What are the risks?

Labour issues are probably one of the more critical issues that would need to be addressed. Another risk would be the timelines for closure not getting adhered to. For instance, the process got pushed by a few weeks.

What other factors could impact a move towards profitability?

What kind of flexibility is allowed to the bidder is a critical factor for success for the privatisation to go through. Also, what sort of disclosures and ring-fencing does the government do, so, if there are any hidden challenges that emerge after the bidding is done, that's a risk.

What effect will the deal have on the Indian aviation market?

For the first time in its history, except when Air India was in the private hands of the Tatas, we will have the entire airline industry in private hands, so that's an overall change in the dynamics of the airline industry. Also if an existing airline is the bidder that picks up the stake, then the ranking of market share position will change. It would lead to a consolidation in the market, which would allow the market to become stronger than it is now.

Will the privatisation increase competition in the market?

Right now the competition Air India offers is lower fares to make up for some service issues and so on. That in a sense distorts the market because other players have to follow with lower prices. But tomorrow, if there's a more professionally run organisation, the pricing discipline may come in and they may not have to discount their fares because they'll be able to attract passengers by virtue of the product and service itself. That will change the dynamics of the industry.