By G R GopinathGoI’s decision to allow 49% foreign airline equity in Air India is good news. The rules were changed last year permitting 100% foreign equity in Indian carriers, restricting foreign airlines holding to 49% — excluding Air India. The move will attract better valuation for the national carrier. The news that the Tatas have shown interest to bid for Air India, along with Singapore Airlines, after the Union Cabinet amended the rules has spread cheer. It is only befitting that the once great airline, now decrepit, goes back into the hands of the business house that founded and nurtured it in its formative years. GoI can snatch any jewel from anyone and appropriate it as it did when it nationalised (and renamed) Tata Airlines. But it can’t unilaterally hand Air India back to the Tatas for a negotiated price. The latter will have to participate in a bid to earn back what was essentially theirs. Although J R D Tata transformed the Tatas into a globally respected corporate house, was respected as a visionary business leader, and revered for his humanitarian work, he was best known as an intrepid aviator who built a great and endearing airline with a huge national and international network. During his reign, working for Air India was the most coveted job in India, coming as it did with glamour and prestige. Though jaded, Air India, however, is a much-loved brand, evoking fond nostalgia. If the government plays its cards well and acts with prudence and transparency, it can still unlock the airline’s true value and potential, and realise good returns. First, the bidding process must be a global, open, transparent electronic tender. The shortlisted bidders must first deposit the reserve price in an escrow and the bid must commence and close within 6-8 hours. It must not be a closed sealed envelope bid, as is still government practice in many bids —which, apart from being suspect and vulnerable to malpractice, won’t get the best price. It should be an open auction where each bidder can increase the bid price after viewing the offer price of other bidders. That’s how the Tatas themselves won the global Corus Steel bid. As Air India is not listed, this is the best way for true price discovery. But to get the highest valuation possible for the beleaguered airline, GoI will do well to spend a lot of time and analyse in depth the tender process through globally respected consultants. It should also hold pre-tender meetings with shortlisted bidders after expression of interest is invited to understand their apprehensions and insecurity. This is key to realising maximum value. The highest bidder will pay only if the confidence level on the conditions of sale and the larger aviation policies are made clear. If GoI makes it a zero debt company with only operational assets for sale, with guarantees of exit terms by the government and mandatory public listing within, say, 36 months — with no interference by politicians and bureaucrats till GoI exits — and adheres to corporate governance, Air India will be an attractive proposition. It must also guarantee complete freedom to the successful bidder to retain only the minimum number of employees per aircraft needed, matching the global average of number of personnel per aircraft in companies like Singapore Airlines. It should assure that every employee laid off is compensated. With a global network to key destinations and slots and space in prized international airports, a massive national network, with hangars, engineering backbone and infrastructure, trained engineers and flight crew, benefits of bilateral rights and an assurance of continued protection of those rights, a revenue of Rs 26,000 crore, which can be doubled with better management in a couple of years, and an inexhaustible customer base with rising income, Air India can get valuations of about Rs 50,000 crore (the current debt levels of the carrier.) The Tatas have the vision, leadership depth, management skills and wherewithal, backed by a war chest and capacity to raise that kind of capital. It can heartily compete with global giants like Emirates, Etihad or British Airways. The Tatas also have the global exposure, appetite and stomach for that kind of entrepreneurial risk. And with Ratan Tata back at the helm, another aviator passionate about the airlines, the stars may be aligned to bring Air India back into the family. And if they do succeed, it will be good for the airlines, its employees and consumers. The government can expiate its past sins and redeem itself, while reaping good value, aided by the prudent policy change. That will be the crowning glory and a fitting tribute to JRD, who can, at last, smile down from the heavens.The writer was founder, Air Deccan