The NDA government has kicked off the disinvestment process for Air India for the second time — its previous attempt in 2018 had failed to receive a single bid. It has issued a preliminary information memorandum for interest to sell its stake in Air India, Air India Express and Air India-SATS. Qualified bidders will be notified by March 31, implying that the stake sale will be closed only in the next fiscal year. But this time, the government seems to have taken care to address some of the contentious issues which had dampened investor interest in the past. This is a welcome move. As the airline has been incurring huge losses, there is simply no rationale for continuing to pump in money into a loss making entity operating in a hyper competitive sector where consumers are well-served by the private sector.
The government has sweetened the deal on several counts. First, unlike last time when it offered to offload only 76 per cent of its stake in the airline, the government will offload its entire stake. This is likely to encourage prospective bidders as it implies having full operational freedom to run the carrier. Second, the government has taken steps to address the airline’s massive debt, which has been a major stumbling block for prospective buyers. This time around, the government has transferred part of the debt to a special purpose vehicle. As a result, the buyer will now have to take over only Rs 23,286 crore of debt. Third, the government has lowered the net worth criteria for potential bidders from Rs 5,000 crore to Rs 3,500 crore. Fourth, eligibility norms have been tweaked and consortiums have been given greater flexibility for bidding, making it a better structured deal. However, prospective buyers will still have to contend with the airline’s huge workforce. Some have argued that investors may find it difficult to buy the entire airline. Thus, a more prudent approach would be to split its various businesses such as international and domestic operations, its ground services arm, and the airport services company, and sell them separately. With the demise of Jet Airways — Air India’s competitor in both domestic and international markets — this revised structure should be attractive to investors.
Explained | Air India disinvestment — what govt has on offer
The repeated delays in the government’s stake sale in Air India, or BPCL for that matter, underline the need to have a better strategy for the disinvestment programme. So far, the approach has been to view it as a means for shoring up the Centre’s revenue towards the end of each financial year. Instead, the Centre could draw up a list of companies for disinvestment and release an advance calendar. This would provide clarity and help potential investors.
