Government to allow holding company structure for Air India


New Delhi, Apr 23: A new owner of Air India will be allowed to operate the airline under a holding company. The entity will also be permitted to co-opt its existing airline brands under the holding company to build synergy.
This, the government believes, will allay concerns of potential suitors about the bidding condition, which mandates operating Air India at arm’s length for three years.
“We had discussions over this clause; the transaction advisor studied airline merger cases and suggested that a holding company structure should be allowed,” said a person involved with the process.
“Suppose a potential suitor has two existing airlines, A and B. It can then incorporate the two brands and Air India under a single holding company. But a merger of Air India with other brands will not be allowed for the first three years,” he pointed out.
According to the conditions set by the government, till the time there is government shareholding in the company, a selected bidder will have to operate Air India on a going concern basis and at arm’s length from its other business. The government has decided to hold a 24 per cent stake in Air India, which it intends to sell in phases, preferably through a public listing.
Bidders have termed the condition onerous; they feel it potentially rules out a merger of operations with a group’s existing brands. Among the possible suitors is Tata Sons, which has two operating airlines, Vistara and AirAsia India.
According to the latest thinking, all forms of commercial partnership will be allowed between Air India and a selected bidder’s existing airlines.
“All forms of commercial partnership, including code share and interline agreements, will be allowed. We will clarify these in the pre-bid queries,” he said.
Globally, in airline mergers and acquisitions, the holding company model has been followed extensively. For instance, when Lufthansa acquired Swiss in 2005, it formed a holding company, Air Trust, to acquire all shares in Swiss. To date, Swiss operates as a separate brand.
Recently, Tata Sons Chairman Natarajan Chandrasekaran said the group was considering if adding another airline to its aviation business would make sense to its business prospects. Earlier media reports, citing unidentified sources, had said the group was unlikely to bid for the state-run carrier as the government’s terms were “too onerous”.