Air India firmly on course to fly into private hands this year

The cash-strapped national carrier Air India, which the government is desperate to sell to a private player, is likely to get financial bids by September 15 this year. This would be a major landmark in the stop-start Air India privatisation process.  

"Multiple Expression of Interests (EoIs) were received by Transaction Advisor. The EoIs were evaluated by the Transaction Advisor for selection of Qualified Interested Bidders (QIBs). Request for Proposal (RFP) along with draft Share Purchase Agreement (SPA) have been shared with QIBs by the Transaction Adviser on 30.03.2021 for submission of financial bids. The financial bids are likely to be received by 15.09.2021," Minister of State for Civil Aviation General (Retd) VK Singh said in reply to a question in Lok Sabha on July 22. 

Air India was put on the block on January 27 last year, with the government offering to offload a 100% stake in both Air India and its low-cost carrier (LCC) subsidiary Air India Express along with management control and 50% stake in the ground-handling unit AISATS. The deadline for receiving EoIs, however, had to be extended repeatedly last year in the wake of the operational challenges for the prospective bidders owing to the Covid-19 pandemic. 

This was the third time that Air India was up for disinvestment, but this time, the deal terms were much sweeter. The former Civil Aviation Minister Hardeep Singh Puri had said on more than one occasion that considering the financial mess that Air India was in, the choice before the government was to either privatise it or close it down. 

"There is no choice, we either privatise or we close the airline. We run a loss of Rs 20 crore every day despite Air India making money now. Because the mismanagement has resulted in a cumulative debt of Rs 60,000 crore,” Puri said, according to a PTI report.

Air India's liabilities could cross $20 billion by 2024-25. Image courtesy: Facebook/Air India

The government, wary of the fact that two previous attempts of disinvestment in Air India had failed to take off, continued to sweeten the deal terms, and in December last year, revealed that the Air India privatisation bid had received multiple expressions of interest. However, the shortlisting of potential bidders continued to be postponed too, and the crippling second Covid wave that hit India threatened to put the Air India sale off track. The Centre has not yet revealed the names of the shortlisted bidders, but according to reports, the Tata Group and budget carrier SpiceJet's promoter Ajay Singh have been shortlisted as prospective buyers of the national carrier. 

According to Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey, the government had earlier targeted to complete the disinvestment by the first half of FY22 (April-September), but now "there could be a little bit of slippage in terms of time", Live Mint reported. Pandey said at the Mint India Investment Summit 2021 in April that the pandemic and long-drawn processes such as physical inspection of assets by potential bidders were responsible for the Air India sale meandering a bit.  

According to the terms and conditions published in January last year, the buyer had to absorb Rs 23,286.5 crore, or around one-third of the airline's total debt, while the rest were to be transferred to the Air India Assets Holding Ltd (AIAHL) -- a special purpose vehicle (SPV). This condition was diluted later and under the present conditions, the shortlisted entities would have to bid on the airline's enterprise value (EV), which means that instead of having to take on a pre-fixed amount of debt, they would now have to quote an EV based on their estimate of the airline's combined debt and equity. Essentially, under the changed rules, the bidders would have to state the amount of debt they would be willing to absorb. 

Also read: Air India sale may fail as Covid-hit bidders too frail, CAPA tells

The winning bidder would be the one quoting the highest EV. At least 15% of this value would have to be paid in cash, while the rest can be taken on as debt.     

As of March 2019, Air India had a total debt of Rs 60,074 crore. This would have gone up substantially during the Covid period, one fears. The national carrier is estimated to have incurred losses of Rs 9,500-10,000 crore in the financial year 2020-21 -- its highest since its controversial merger with Indian Airlines in 2007, beating the record Rs 8,500 crore loss in 2018-19, The Economic Times reported. It had, in fact, not seen profits since its merger with Indian Airlines. 

Air India CMD Rajiv Bansal had said that the airline's losses could be around Rs 8,000 crore in FY21. Its cash losses are expected to rise 80% on year to Rs 6,000 crore in FY21. The condition of Air India Express has, however, been much better than its parent.  

Air India's liabilities are expected to go past $20 billion by 2024-25. This includes losses suffered during FY21 and FY22 as a result of the pandemic, according to aviation consultancy firm CAPA's India Aviation Outlook FY22. CAPA India believes that the government may need Plan B to take the Air India privatisation process to its logical conclusion, as the second Covid wave may have dented the prospective bidders. 

Air India is trying to sell a few of its properties to reduce its debt load. The AIAHL had been set up as an SPV for the warehousing of the airline's non-core assets. "Monetisation proceeds of non-core assets of Air India are to be used to offset the debt of Air India transferred to AIAHL," General (Retd) Singh said in Parliament. 

Successful sale of Air India would boost the government's plans to mop up Rs 1.75 lakh crore from disinvestment in FY22. Image courtesy: Facebook/Air India

"The reserve prices of properties were fixed by the Oversight Committee of Air India as the highest value received from three valuers. The Oversight Committee approved 10% reduction in the reserve prices of 16 properties after previous attempts to auction the properties failed to attract bidders," he added. 

While the immovable assets of the company are being monetised, the movable assets have been proposed to be transferred to the new owner of Air India, General (Retd) Singh said, replying to a separate question. The airline in June had offered to sell several properties, including offices, flats and staff quarters at major metropolitan cities, with the aim of raising Rs 200-300 crore from its asset monetisation plan, The Week reported. These properties include residential units at New Delhi's Asian Games Village Complex, flats in Mumbai's Bandra (Pali Hill), flats in Kolkata's Golfgreen and the airline's booking office at Nagpur, among others.

Also read: Air India sale to be delayed; SpiceJet's Ajay Singh seeks more relaxations

The government had sought to bring about the financial and operational efficiency of Air India to prepare the airline for disinvestment. Accordingly, the government had made an equity infusion of Rs 1 lakh in 2019-20 and Rs 3,975 crore in 2018-19. 

"In FY 2020-21, GoI guarantee support of Rs 964 crore has been provided to Air India which has helped it to raise new working capital loans from Indian banks. Further, the government has also extended the existing GoI guarantee of Rs 6,693 crore for working capital requirements and $819 million for refinancing aircraft bridge loans. National Small Savings Fund (NSSF) loan of Rs 4,500 crore has also been provided to Air India in FY 2020-21," Puri said in a reply in Parliament.

Union Finance Minister Nirmala Sitharaman had announced in February that the government is confident of completing all planned PSU disinvestments, including those of Air India and Pawan Hans by 2022. The government had set an ambitious target of Rs 1.75 lakh crore from disinvestments in FY22. A timely sale of Air India would count as one of its biggest successes of the new leadership team in the Ministry of Civil Aviation (MoCA), with Jyoriraditya Scindia at the helm and General VK Singh acting as his deputy.

(Cover image courtesy Wikimedia Commons/Flickr/Venkat Mangudi)