Air India privatisation finds three suitors

For sale: a few old planes but lots of potential

Three groups haved queued up to buy tickets in the part-privatisation of Air India, the country's flagship carrier.

India's largest business conglomerate, the Tata group, has lodged a joint bid with Singapore Airlines, as has Air France with the second-biggest US carrier Delta.

A last-minute surprise contender emerged when the UK-based billionaire Hinduja brothers teamed up with Lufthansa Consulting.

Dubai's Emirates was also expected to join in but decided to stay out of the sale.

The bidders do not have to say how much they are prepared to pay for a stake in the country's national carrier.

Singapore sling

The application by Lufthansa Consulting was unexpected because its parent company is a partner in the Star Alliance with Singapore Airlines. If the German carrier buys Air India (AI) it will compete directly with Singapore on some routes.

Hinduja's expected to bid

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

The Air France/Delta bid would be for a reduced stake because they do not have an Indian partner, which ranks them as an outside player.

A spokesman for London-based steel-billionaire, LN Mittal, confirmed to BBC News Online that he would not be bidding for either airline but would not give any reasons why.

In an earlier bidding round, Mr Mittal and finance company Kotak Mahindra had expressed an interest in Air India, with British Airways and Qantas acting as technical advisors for the bid.

Privatisation programme

The sale of Air India, which flies mainly to international destinations, and its domestic sibling, Indian Airlines, is part of the government's broad privatisation programme.

Domestic carrier Indian Airlines also for sale

Foreign bidders can buy 26% of Air India or 40% in conjunction with an Indian partner. Employees and financial institutions will be offered 10% each, with the rest being retained by the government.

The government is also selling a 26% stake in Indian Airlines, which is restricted to domestic buyers. Tata has said it will not bid.

Up in the air

The government and JM Morgan Stanley, the bank advising the sale, have not been able to put a price on Air India because of its vague asset register. Some reports value it at $2.6bn (£1.8bn).

The number of carriers interested in Air India initially surprised analysts because of huge recent losses and debts and its small, ageing fleet of aircraft.

Over the past five years Air India has lost 10bn rupees ($214m, £148m) and has amassed 38bn rupees in debt. It also employs 18,000 staff, which at over 700 workers per plane, is more than double the industry standard.

The Indian Pilots Guild fears there will be major job losses when the airline is sold.

A large number of staff could lose their jobs

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 loaned to other carriers.

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

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.