India’s steel-to-autos conglomerate Tata Group, widely seen as a potential suitor for Air India, is unlikely to consider a bid for the state-run carrier as the government’s terms are just too onerous, two sources familiar with the matter said.

India, keen to sell the loss-making, debt-ridden airline, finalised plans in late March to divest a 76 percent stake and offload about $5.1 billion of its debt.

But the government has stipulated the winning bidder cannot merge the airline with existing businesses as long as the government holds a stake. The winner may also be required to list Air India and would need to abide by conditions designed to safeguard employee interests, restricting its ability to cut staff.

Since the terms were disclosed, no company has come forward to say it is interested or to reaffirm previous interest, while Jet Airways and rival IndiGo, have already publicly opted out of the race.

A lack of interest from Tata is likely to put pressure on the government to rethink its terms or even the structure of the sale.

“The deal structure needs serious corrections,” said Amber Dubey, partner and India head of aerospace and defence at consultancy KPMG.

He said the main challenges are the debt, the government’s residual 24 percent stake and the workforce, adding that the government should consult with potential bidders and simplify the terms.

Tata Group, which already owns stakes in two airline joint-ventures in India, does not see “how a deal would be workable” under the current terms, said one of the sources, who asked not to be identified due to the sensitivity of the matter.

“Anyone who puts money upfront … even for Tata to put in that kind of money, it would want complete control,” said the second source.

Tata Sons, the holding company for the conglomerate Tata Group, declined to comment.



In addition to the 76 percent stake, the government is also selling all of Air India’s low-cost arm – Air India Express, and 50 percent in the airline’s baggage handling and airport services unit.

The buyer would have management control and gain access to more than 2,500 international slots and over 3,700 domestic slots. But it would also need to take on Air India’s 27,000 employees, 40 percent of which are permanent staff.

While the government has not set any minimum price, the entire sale could fetch between 80 billion and 100 billion rupees ($1.2 billion to $1.5 billion), said two banking sources who were not directly involved in the deal.

By contrast, Kotak Institutional Equities said in a note to clients this month that even if a buyer paid nothing for the equity, Air India still looked expensive versus peers due to its debt and lease obligations alone.

Air India, which was bailed out in 2012 with $5.8 billion of federal funding, has troubled the government since a botched merger between two state carriers in 2007. Previous attempts to sell off the airline have floundered, due to political and union opposition and a lack of potential buyers.

It posted a loss of 57.65 billion Indian rupees ($880 million) in the last financial year.

Prior to the disclosure of the terms, there had been some expression of interest from the Tata Group, including remarks from Chairman N. Chandrasekaran in October that the group would take a look once the privatisation process was finalised.

In January, Leslie Thng, the chief executive of Vistara, a joint-venture between Tata and Singapore Airlines told reporters its owners were open to evaluating a bid for Air India.

Vistara declined to comment on Wednesday. Singapore Airlines said in a statement its priority was the further expansion of Vistara, although it would keep its options open with respect to Air India.

Foreign partners will need to join hands with a local firm for any bid as control of the asset has to rest with an Indian entity.

($1 = 65.2000 Indian rupees)