Along with a 76 per cent stake in Air India — with a fleet of 115 aircraft and over 2,500 prime international slots in markets including the US, UK, Europe, Southeast Asia and West Asia — the government, as per a preliminary information memorandum (PIM) issued on Wednesday, will also package Rs 33,392 crore of debt and liabilities of Air India and Air India Express.
Laying the ground rules for potential bidders, the government has mandated that the successful purchaser cannot sell the shares or cede management control for at least three years from the date of consummation of the transaction.
As of March 31, 2017, Air India and Air India Express had a total debt of Rs 51,379.60 crore.
Inviting expression of interest, the Ministry of Civil Aviation outlined the parameters for potential bidders. The qualified bidders will then move on to the request for proposal stage, where the details of the stake sale will be shared. Bids have also been called for sale of Air India’s 50 per cent stake in AI-SATS, a ground-handling subsidiary between Air India and Singapore Airport Terminal Services.
The government has laid down the contours for reallocation of the airline’s debt component, which is considered by industry and experts to be a spoiler in the disinvestment process. “The existing debt and liabilities of Air India and (its wholly-owned subsidiary) Air India Express as on 31st March, 2017 are being reallocated and it is expected that debt and liabilities, including net current liabilities of Rs 8,816 crore, aggregating to Rs 33,392 crore will remain with Air India and Air India Express,” said the memorandum, adding that the balance debt will be allocated to Air India Asset Holding Ltd, a special purpose vehicle owned 100 per cent by the Centre.
The memorandum said the details of this debt and liabilities reallocation would be shared at the RFP stage.
Furthermore, all non-core assets, such as the Air India building in Mumbai and other real estate properties, will not be part of the proposed transaction. They will become part of the special purpose vehicle that will own the working capital debt of the company.
The consortium bidding for Air India must have a minimum net worth of Rs 5,000 crore. However, to encourage participation by Indian airlines, the Centre has allowed scheduled air operators based in India with a nil or negative net worth to also bid, given that they form a consortium that meets the minimum criteria.
Currently, among India-based airlines, only IndiGo has a positive net worth of Rs 3,800 crore. Most of the other large airlines, including Jet Airways, SpiceJet and Vistara, have a negative net worth. So far, among all Indian carriers, only IndiGo has submitted an official letter expressing interest in purchasing certain operations of Air India.
Within a consortium as well, an entity that is either not an airline or not based in India, must have a minimum net worth of Rs 5,000 crore and should have reported a profit, after taxes, in three of the last five years.
Days after he stepped down as the Minister of Civil Aviation earlier this month, Ashok Gajapathi Raju, speaking at The Indian Express Idea Exchange, had said it was difficult for the government to be in a competitive business like the airlines sector, where the margins were thin and decisions were quick.
“As for Air India, I think it’s a beautiful airline. I won’t like it to go the Kingfisher way. I would like it to survive… there is serious thinking in this government, that it (Air India) should be professionalised and the government should let it go… It’s a beautiful airline and its parameters have also improved. Its finances are bad and it’s in a debt trap. It needs to come out of it, and I think it will,” he had said.
The PIM notes that the new owner will have to retain the Air India brand for a minimum period that would be stipulated in later stages of the disinvestment process. Also, the VVIP operations that are currently handled by Air India will continue to be managed by the airline even after the Centre has parted with a controlling stake in the company.
The decision to issue a PIM follows several rounds of discussions by the Group of Ministers headed by Finance Minister Arun Jaitley, constituted to work out the modalities of the airline’s strategic sale. This was done in June 2017, when the Cabinet Committee of Economic Affairs granted an in-principle approval for the disinvestment.
The government has set May 14 as the last day for submission of expression of interest, and the qualified bidders will be intimated on May 28.