On October 29, the Government of India announced yet another round of changes to facilitate the sale of Air India. The most substantive change concerns the level of debt that prospective bidders would necessarily have to take on if they bought the national carrier. Earlier, the government had mandated a fixed level of debt to be bundled with the sale. This was a hefty amount of Rs 23,286.50 crore. According to the latest announcement, the government will allow prospective bidders the flexibility to decide the level of debt they wish to take on while buying the debt-ridden airline. The second substantive change is that the winning bidder will have to deposit at least 15 per cent of the bid amount in cash with the government ahead of the share transfer. Since these crucial changes were announced just a day before the last date for submission of expressions of interest, the government also announced an extension of this deadline from October 30 to December 14 so that potential bidders have a chance to carefully evaluate the new terms and conditions.
The government hopes that these changes would make Air India a more attractive proposition. The high — and rising — level of debt has easily been the biggest stumbling block in the sale of Air India since it was first put up for sale in 2018. Air India had close to Rs 60,000 crore of debt even before the pandemic made things worse; the beleaguered carrier has accumulated additional debt since the start of the current financial year. Given the fact that aviation has been one of the worst-hit sectors in the wake of the COVID-19 pandemic, resulting in debt levels going up across the industry, the government was of the view, and rightfully so, that “fixing the debt at any level could have reduced the universe of bidders”.
Notwithstanding the latest changes, the biggest threat to the government’s efforts is the timing. Most existing players, who would have made for the best bidders, are struggling to survive themselves. Moreover, air traffic in October, while distinctly better than May, is less than half of what it was before the pandemic hit. Further, with the second wave of COVID infections across the board, estimates suggest that most airlines may struggle to be financially viable even in 2021. Beyond the timing issue, it is too early to assess whether the latest tweaks would be enough to attract interest from the buyers. It is noteworthy that in the previous iterations since 2018, Air India has not attracted a single bid. The trouble is, since Air India losses money each year, it is difficult for the government to wait out this trough in the market — unless, of course, it can find ways to run the airline in such a manner that it doesn’t leak money.
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