Positives such as a fleet of 115 aircraft and over 2,500 prime international slots in markets including the US, UK, Europe, Southeast Asia and West Asia could not outweigh the negatives such as a high employee-to-aircraft ratio and the packaging of more than Rs 33,000 crore of debt and liabilities of Air India and Air India Express as no expressions of interest were made to acquire Centre’s 76 per cent stake in the flag carrier Thursday. A senior government official said that the strategy of the sale could be re-evaluated after the exercise failed to attract any bids.
“As informed by the Transaction Adviser, no response has been received for the EoI floated for the strategic disinvestment of Air India. Further course of action will be decided appropriately,” the Ministry of Civil Aviation said after the deadline for sending bids passed. EY is the transaction adviser to the government for strategic disinvestment.
“We were looking forward for better participation,” civil aviation secretary RN Choubey said. He indicated that there could be a rethink on the disinvestment strategy. He asserted that the government will ensure that the airline does not face “any operational difficulties following the latest developments”. Choubey was responding to a query on whether the airline would now be having more financial uncertainties due to decisions linked to the outcome of the disinvestment process.
On March 28, inviting EoIs, the Ministry of Civil Aviation outlined the parameters for bidders. The qualified bidders would have moved on to the request for proposal stage, where the finer details of the stake sale were to 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 was 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 arm) Air India Express as on March 31, 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,” the memorandum had said, adding that the balance debt will be allocated to Air India Asset Holding Ltd, a SPV 100 per cent owned by the Centre.
Aviation consultancy firm CAPA India pointed out that “to proceed to successful closure will require changes to prelim terms on debt levels and labour, plus commitment from government not to interfere”. The consultancy had earlier said that lack of confidence from bidders about being “ring-fenced from possible political risks if successful” could be a key-reason behind non-participation by some parties.
“…with India entering an election year there could be a temptation to drop the divestment plans. That would be unfortunate, and costly. Taxpayers will be left to fund potentially billions of dollars of losses over the coming years. Instead, the government should ideally move ahead with a comprehensive restructuring under a special administration, followed by 100 per cent privatisation with less complex terms. But whichever route it takes, it is critical that the government provides strategic clarity on the next steps,” CAPA India said.
In April, within a week, IndiGo and Jet Airways had said they will not participate in strategic sale. Jet Airways deputy CEO and CFO Amit Agarwal had said that “considering the terms of offer in the information memorandum and based on our review, we are not participating in the process”. Prior to that, IndiGo had backed out citing that the option to acquire only the international airline operations of Air India and Air India Express was not available under the divestiture plan of the government, and SpiceJet CMD Ajay Singh had said that Air India was too large an asset for the low-cost carrier.