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Putting 100% on table, Govt renews push to sell Air India

In the preliminary information memorandum, the government has made a number of key changes in its attempt to make it more attractive for bidders.

By: ENS Economic Bureau | New Delhi |
Updated: January 28, 2020 4:52:34 am
The government has set March 17 as the deadline for submitting the Expression of Interest (EoI).

In its second attempt in less than two years, the government Monday invited expressions of interest to sell its entire 100 per cent shareholding in its national carrier, Air India Ltd. Along with it, the government will also sell Air India’s 100 per cent holding in Air India Express, a low-cost carrier, and 50 per cent share in Air India-SATS, a joint venture in which Singapore Airport Terminal Services holds the balance 50 per cent.

In the preliminary information memorandum, the government has made a number of key changes in its attempt to make it more attractive for bidders.

Bidders are going to get 45 days: MoS Hardeep Singh Puri

In March 2018, the government had offered to sell only 76 per cent holding in Air India but did not find any suitors. Now bidders need to have a minimum net worth of only Rs 3,500 crore compared with Rs 5,000 crore earlier. For a scheduled Indian airline operator, there is no net-worth criteria. Further, the government has frozen the long-term liability to be bundled with the sale at Rs 23,286.50 crore.

The government has set March 17 as the deadline for submitting the expression of interest. The qualified bidders would be intimated on March 31, effectively taking the process over to the new financial year.

Said Minister of State (Independent Charge) Civil Aviation Hardeep Singh Puri: “We have gone into this exercise, months of planning and preparation have gone into it and this is not the final, final. The bidders are going to get 45 days, they are going to come back to us. It is an interactive process… We are open to revising, refining and tweaking our views.”

As per its latest audited financials, Air India reported a net loss of Rs 8,556.30 crore on a topline of Rs 26,430.60 crore during financial year 2018-19.

In the first attempt at disinvestment, even a minority 24 per cent shareholding by the government was negatively viewed by potential acquirers who would have got management control of the airline. The rationale offered by government officials then was that the value of the Centre’s share would have jumped once the transaction closed.

The government has also adopted a principle of allocating only as much debt as the assets being taken over by the bidder now. An amount of Rs 23,286.50 crore will be bundled with the airline and this has been frozen to provide certainty to bidders. In addition, certain identified current and non-current liabilities other than debt will also be bundled with the package. This amount stands at Rs 8,771.50 crore as on March 31, 2019. The combined debt and liabilities the buyer will take on its book will stand at Rs 32,058 crore.


3 key changes to sweeten offer

The three key sweeteners to attract buyers: 100% stake on offer compared with 76% last time; lowering minimum net-worth criteria for bidders and freezing long-term liability. Air India unions have met the Govt but prolonged global slowdown and political opposition from within could affect the disinvestment process.

“What is significantly different this time, is that the debt built up over cumulative losses, cannot be passed on to any concern. What is being passed on is equivalent to the assets. In principle, we wanted net current liabilities to be nil,” said Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management (DIPAM).

The remaining debt and liabilities of Air India will be transferred to a special purpose vehicle, Air India Asset Holding Ltd (AIAHL), which will also retain the land assets including the Air India Nariman Point building in Mumbai and various other residential apartments owned by the airline.

Pandey said these land assets will be sold to settle a part of the total debt that AIAHL will hold — Rs 56,334 crore — and the remaining will be paid off by issuing bonds.

The estimated proceeds to be raised from sale of land assets is expected to be around Rs 17,000 crore. However, land and buildings at Delhi, Mumbai airports and the corporate offices, which are core assets for running the airline, will be given to new investor on right-to-use basis for a limited period. Until the transaction is closed, additional debt raised by the airline will be transferred to the SPV.

The government’s sales pitch for Air India, though, is consistent with the last attempt, which is the availability of attractive domestic and international slots at capacity-constrained airports that could provide significant advantage to any new player looking to enter or an existing player looking to expand into the Indian market; and premium wide-bodied aircraft that the airline owns. While the airline will transfer four Boeing 747-400 jumbojet aircraft to its subsidiary Allied Air Services — which is not a part of the divestment process — the new investor will gain access to Air India’s inventory of 121 aircraft, which includes 27 Boeing 787 Dreamliners and 16 Boeing 777 planes. However, 18 of the 121 aircraft in use by Air India are currently grounded.

In the last disinvestment attempt, those potentially looking at bidding for the airline had also raised issues of the airline’s employee strength. The airline has 17,984 employees of which 9,617 are permanent staff. According to the preliminary information memorandum, 36 per cent of the permanent staff are set to retire in the next five years. In addition to the debt that is being taken off the entity being divested, the government said employees’ dues of about Rs 1,383.70 crore on account of Justice Dharmadhikari Commission’s recommendation on past arrears will be paid by AIAHL before closing of the proposed transaction.

Notably, the government has also put in a condition that the new investor of the airline will continue to use the Air India brand, comprising the airline’s name and various logos.

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