The Union government on Monday invited bids for 100% stake sale of Air India (AI) and transfer of management control along with its complete share in two subsidiaries-low-cost international carrier Air India Express and ground-handling arm AISATS. The government has offered to hive off liabilities worth nearly Rs 40,000 crore to sweeten the deal.
This is the second attempt in two years by the Narendra Modi-led government at privatising the national carrier. On May 31, 2018, when the deadline for bids closed, not even a single private player had shown interest.
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On the table is 100% stake in AI, 100% stake in AI Express Limited (AIXL) and all of the government's 50% stake in AI-SATS, which is a joint venture with Singapore-based ground handling company SATS Limited.
The new buyer will get a total of 146 aircraft, 56% of which are owned by the airline group, while the remaining are on lease. It will also benefit from as much as 50% of international market share held by Indian airlines as well as the airline’s 4,400 airport slots at airports in the country and 3,300 slots in 42 countries, which will be available at least for six months after the sale is complete. As many as 9,617 permanent employees, including pilots and cabin crew with deep technical and operational expertise, will be up for grabs along with the airline’s brand as well as the famous “Maharaja” and “Flying swan” logos.
Any private or public limited company, a corporate body and a fund with a net value of Rs 3,500 crore will be eligible to bid. The last date for submitting interest to the transaction advisor is March 17 and the outcome of this round will be known by March 31, following which qualified bidders will be given two months to submit financial bids.
Minister of State for Civil Aviation Hardeep Puri said at a press conference, “There is a lot of interest [in Air India's sale]. Today's attempt is qualitative different from the previous attempt. Air India and Air India Express are a great asset”.
But the private player keen to buy Air India will also have to take on liabilities of Rs. 32,474 crore, which includes the airline's debt of Rs 23,286 crore. The government will absorb Rs 56,334 crore in liabilities, including Rs 36,670 crore of debt. These have been transferred to a special vehicle known as Air India Assets Holding Limited (AIAHL), which will also comprise real estate and other assets worth Rs 17,000 crore. Therefore, the net liability to be borne by the government will be Rs 39,259 crore.
“The debt which has been built up due to cumulative losses isn’t the debt which can be passed on because it will not be sustainable. Sustainable debt equal the written down value of the assets, which is basically the planes in this case,” Secretary, Department of Investment and Public Asset Management (DIPAM), T K Pandey, told reporters.
Kapil Kaul, CEO of aviation consultancy CAPA, said, “A clean exit by the government and exclusion of the entire non-aircraft related debt signal a bold reform and a very determined effort to exit the airline to allow the tax payers funds to be utilised for the government's social agenda. This may be the single biggest write-off by the government”.
As far as the future of the employees is concerned, Air India Chairman and Managing Director Ashwani Lohani said, “All employees will go to the new buyer. There are no excess employees in Air India”. The buyer should retain these employees for a certain lock-in period, which would be divulged in the share purchasing agreement. The government was exploring different modalities to ensure that the retired staff have a medical cover, he added.
After the sale is over, government employees will no more be required to travel mandatorily by Air India to seek a full refund.
The bid document also states that the existing FDI (foreign direct investment) policy, which allows a foreign airline to buy upto 49% in Air India will continue to apply. The substantial ownership and control will also have to rest with an Indian national.
Asked how the attempt to sell the airline was different from the previous one, Secretary of Ministry of Civil Aviation P S Kharola said, “This time we have offered 100% equity sale, while it was 76% sale last time. Last time, we said we will remove a debt of Rs 29,000, while this time we have said the debt will be fixed at Rs 23,000 crore, which gives a lot of certainty in the minds of the bidder”.