Air France abandons India bid

For sale: a few old planes but lots of potential

Air France has withdrawn its bid to take a 40% stake in Air India, the country's flagship carrier.

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

But the Air France and Delta team has now confirmed that it has abandoned its bid.

This leaves the Tata group competing with surprise latecoming team of the Hinduja brothers and Lufthansa Consulting.

Government control

Air France said that it withdrew from the running becasue of the withdrawal of its Indian partner ITC.

But Indian sources say that Air France and Delta pulled out because of the high degree of control that the Indian government wants to keep over the airline.

Hinduja's bid came as a surprise

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

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.

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.

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.

A large number of staff could lose their jobs

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.

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.