Air India sale draws a blank in blow to Modi’s divestment target

India’s high-profile offer to sell a stake in Air India failed to attract a single bidder by the Thursday deadline, dealing a blow to Prime Minister Narendra Modi’s target for offloading stakes in government-held firms. The no-show by buyers in a booming aviation market underlines the challenges the government faces in fixing the debt-laden national carrier, and was a setback for Modi’s credentials as a reformer willing to step away from running money-losing businesses. The government announced a plan in March to divest a 76 percent stake in Air India and offload about $5.1 billion of its debt, but prospective buyers stayed away, with some citing onerous terms as a reason for their lack of interest.

The government is now considering changing the terms of the sale, the process for which will be re-evaluated in the next two weeks, said R.N. Choubey, the top civil servant in the Ministry of Civil Aviation. “It did not meet the expectation of participation we had,” Choubey told reporters, adding that his ministry thought giving 76 percent management control was “good enough”.

Choubey said on Wednesday the government had no plans to extend the May 31 deadline. Earlier this month the government had eased some terms and extended the period to make bids, but still found no takers for the airline, which flies some lucrative routes but also has one of the industry’s highest employees-per-aircraft ratios. Selling the state carrier had been seen as key to Modi’s plans to divest assets and help keep the fiscal deficit at 3.3 percent of GDP, a goal already under pressure from giveaways to farmers and other welfare benefits ahead of a national election in 2019.

Renu Kohli, a Delhi-based independent economist, said the government would now need to step up elsewhere to meet its divestment target. “Relative to what we are seeing this year … uncertainty in the financial markets, aggravated distress among banks and rising interest rates and oil prices, it does not seem like a very supportive time for people to come and buy such an asset,” Kohli said, adding that Air India needed large investment. The government may look to raise a record 1 trillion rupees ($15 billion) from the sale of state assets in the current fiscal year that started on April 1, and Air India was expected to be a significant contributor. While the government had not set any minimum price, banking sources had told Reuters the sale could have fetched between 80 billion and 100 billion rupees ($1.2 billion to $1.5 billion).