Directions(Q.1-8): Study the following passage and answer the questions:
Air India’s disinvestment, first attempted by the AtalBihari Vajpayee
government, is being revived. The sale bid the last time was a flop, shelved
prematurely after all the bidders were either disqualified or dropped out. The
many factors that were and may still be at work against the sale are not widely
understood. Unless overcome, they may again endanger the sale.
In May 2000, bids were invited for a 40% stake in Air India, with a cap of
26% on foreign investment. The airline had reported losses for six straight
years, had $70 million debt on its books and was fast losing traffic. More than
18,000 workers were on its rolls for a fleet of just about two dozen planes.
Its employee-aircraft ratio, 750, was among the worst. Singapore Airlines, in
contrast, had 91 employees per aircraft. Inefficiency, typical in a
government-controlled set up, was bleeding Air India. Yet, the quantum of stake
on offer made it clear that the government intended to retain a crucial stake,
appoint its own directors and continue to have a say in running the business.
Put off by the substantial degree of control the government wanted to retain in
the airline after the disinvestment,
several potential bidders stayed away from the sale, including, possibly the worthiest contender. Plus, in a sale carried out through competitive bidding, reduced interest can impact the valuation.
several potential bidders stayed away from the sale, including, possibly the worthiest contender. Plus, in a sale carried out through competitive bidding, reduced interest can impact the valuation.
The sale’s stated purpose was to bring on board a strategic partner who
would turn around Air India. But the sale’s rules were loaded against
candidates with a proven track record — foreign airlines. Lufthansa, Swissair,
Emirates, British Airways and Air France-Delta in combination were among those
to have expressed interest formally in buying the stake. However, a bidding
rule that required foreign airlines to team up with a local partner forced them
to opt out. Singapore Airlines, which had also expressed interest formally,
roped in the Tatas to proceed with its bid.
Those who remained in the fray had their expressions of interest evaluated;
those ineligible were disqualified. In the end, the contest was down to two
bidders — the Hinduja group and the Singapore Airlines-Tata joint venture. Both
were invited to inspect Air India’s books. The Hindujas’ bid was already under
fire from the Opposition over allegations related to the Bofors arms scandal.
After studying Air India’s financial records, the group presented to the government
a whole set of conditions on management control, threatening to withdraw if
these were not met. The government barred the Hindujas from pursuing its
bid, leaving a sole bidder: the Singapore Airlines-Tatas combine.
Private airline owners who had so far orchestrated resistance to the sale
from the background, now openly pointed out that the majority stakeholder in
Singapore Airlines was a foreign government. The unmasked attack made Singapore
Airlines pull out. The airline said in a statement that the intensity of
opposition to the privatisation from political groups and the trade unions had
surprised it and that in such an adverse climate, it was not confident it could
play a useful role.
The then Disinvestment Minister, ArunShourie, clarified that the Tata
group, Air India’s erstwhile owner before its nationalisation in 1953, could
proceed with its bid without a partner. But the Tatas too withdrew, forcing the
government to abort the disinvestment.
If the government was eager to retain its hold over Air India, the private
airline owners were anxious that foreign airlines should not gain control over
it. Both the motives succeeded. The back story of how the mood against foreign
airlines was whipped up was retold at a public meeting by Mr. Shourie. A Delhi-based
chamber of commerce wrote to the Prime Minister lobbying against foreign
investors being allowed to acquire more than 25% stake in Air India, as this
was the rule in the U.S., China, Thailand and Mexico. Senior parliamentarians
had sent similarly-worded recommendations. The comparison sought to be drawn
was unfair. Under Indian law, investors owning fewer than 26% shares cannot
move special resolutions, a restriction that did not apply in the countries the
letters cited. After the sale was scrapped, private airlines flourished.
Although Air India’s fleet — which includes its subsidiaries — has now grown to
around 150 aircraft, it has lost traffic and market leadership to competition.
If the mistakes of the past are a guide, the sale’s purpose should guide
the sale’s rules. Air India’s debt, now about $8 billion, is growing
unsustainably. It was bailed out with $5.8 billion of taxpayer money in 2012.
The sale’s purpose should be to compensate taxpayers for shouldering the burden
of keeping the national carrier afloat. Air India’s disinvestment could deliver
this if it results in reduced government interference and increased
competition. Remember, most taxpayers are also flyers.
Competition in the air travel market will not increase if Air India gets acquired
by a private airline in India. The rules should provide foreign airlines a
level playing field. Sharp scrutiny of objections can expose and thwart hidden
vested interests.
Selling only a part of the government’s holding will not free Air India of
the ills of public ownership. The government will have to exit the airline
cleanly and completely. The reform demands political courage, economic wisdom
and business-like shrewdness.
1. How much debt on Air India books according to the passage?
A. $70 Million
B. $70 Billion
C. $50 Million
D. $50 Billion
E. None of these
2. Which of the following statement is false according to the
passage?
I. More than 18,000 workers were on its
rolls for a fleet of just about two dozen planes.
II. Inefficiency, typical in a
government-controlled set up, was not bleeding Air India.
III. Yet, the quantum of stake on offer
made it clear that the government intended to retain a crucial stake, appoint
its own directors and continue to have a say in running the business.
IV. If the government was eager to
retain its hold over Air India, the private airline owners were anxious that
foreign airlines should not gain control over it.
A. Only I
B. Only II
C. Only III
D. Only IV
E. All are correct
3. In May 2000, bids were invited for a………… stake in Air India, with
a cap of……… on foreign investment.
A. 26%, 40%
B. 36%, 50%
C. 40%, 26%
D. 50%, 36%
E. None of these
4. Which of the following companies have expressed interest formally
in buying the stake of Airlines?
A. Lufthansa and Swissair
B. Emirates and British Airways
C. Swissair and Emirates,
D. Lufthansa, Swissair, Emirates, British Airways and Air France-Delta
E. Lufthansa, Swissair, British Airways and Air France-Delta
5. Which of the following were invited to inspect Air-India’s book?
I. The Singapore Airlines-Tata joint
venture
II. Air France Delta
III. The Hinduja group
A. Only I
B. Only II
C. Only III
D. Both I and II
E. Both I and III
6. Which of the following statement is true according to the passage?
I. Singapore Airlines, which had also
expressed interest formally, roped in the Tatas to proceed with its bid.
II. Those who remained in the
fray had their expressions of interest evaluated; those ineligible were
qualified.
III. After studying Air India’s
financial records, the group presented to the government a whole set of
conditions on management control, threatening to withdraw if these were not
met.
A. Only I
B. Only II
C. Only III
D. Both I and II
E. Both I and III
7. Choose the word which is MOST OPPOSITE in meaning of the word
printed in bold as used in the passage.
Fray
I. Agreement
II. Quarrel
III. Clash
A. Only I
B. Only II
C. Only III
D. Both I and III
E. Both I and II
8. Choose the word which is MOST SIMMILAR in meaning of the word
printed in bold as used in the passage.
Pursuing
I. Break
II. Run away
III. To continue
A. Only I
B. Only II
C. Only III
D. Both I and II
E. None of these
Answers & Explanation:
Ans 1. A.
Solution:
The airline had reported losses for six straight years, had $70 million
debt on its books and was fast losing traffic.
Ans 2. B.
Solution:
Inefficiency,
typical in a government-controlled set up, was bleeding Air India.
Ans 3. C.
Solution:
In May 2000, bids were invited for a 40% stake in Air India, with a cap of
26% on foreign investment.
Ans 4. D.
Solution:
Lufthansa, Swissair, Emirates, British Airways and Air France-Delta in
combination were among those to have expressed interest formally in buying the
stake
Ans 5. E.
Solution:
In the end, the
contest was down to two bidders — the Hinduja group and the Singapore
Airlines-Tata joint venture
Ans 6. E.
Solution:
Singapore
Airlines, which had also expressed interest formally, roped in the Tatas to
proceed with its bid.
After studying Air
India’s financial records, the group presented to the government a whole set of
conditions on management control, threatening to withdraw if these were not
met.
Ans 7. A.
Solution:
Ans 8. C.
Solution:
Pursuing: To continue
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