Air India likely to get new owner by September this year

The Air India disinvestment process has really gathered pace with the government now calling for financial bids

Air India likely to get new owner by September this year
An Air India Boeing 787-8 Dreamliner. Image courtesy: Wikimedia Commons/Mark Harkin

The privatisation of national carrier Air India is expected to be completed by September this year with the government calling for financial bids from the eligible entities. 

India's largest conglomerate and Air India's forefather Tata, and low-cost carrier SpiceJet's promoter Ajay Singh, have been invited to place financial bids for the ailing airline, the Hindu Business Line reported. 

According to PTI sources, the bidders were given access to Air India's virtual data room (VDR) and the investors' queries were answered. 

There were "multiple expressions of interest" in the strategic sale of Air India in December last year, according to Department of Investment and Public Asset Management (DIPAM) secretary Tuhin Kanta Pandey. 

The list of bidders was later pruned. US-based fund Interups dropped out of the race, while a consortium of Air India employees under the company's commercial director Meenakshi Mallik was disqualified.

Since the beginning, Tata has been considered as the frontrunner to acquire Air India, while the names of Ajay Singh, Kolkata-based businessman Pawan Ruia, Ras Al Khaimah Investment Authority and Bird Group promoter Ankur Bhatia have also been doing the rounds. 

Plane Vanilla had reported in December that the Tata group may be integrating its airline businesses in India to focus all its energies on bagging its long-lost offspring Air India. According to reports, the Tata group had been trying to convince Singapore Airlines, its joint venture partner in Vistara, to be a part of the Air India bid, but the latter has continued to remain unenthusiastic in view of the losses suffered in the wake of the Covid-19 pandemic. As a result, Tata is said to be planning to bid instead through its low-cost arm AirAsia India, in which it holds a controlling stake. 

SpiceJet Chairman and Managing Director Singh, on the other hand, has also shown a keen interest in the national carrier, according to The Economic Times. 

Air India essentially had emerged out of Tata Airlines. Tata Airlines started as Tata Air Services with an investment of Rs 2 lakh from Tata Sons and two second-hand de Havilland Puss Moth aircraft. It was in 1932 that JRD Tata piloted a de Havilland Puss Moth carrying airmail from Karachi to Bombay (present-day Mumbai). That was the first flight of Tata Airlines, and indeed of the country. 

Since then, the airline went on expanding. In 1946, Tata Airlines became a public limited company and was renamed Air India. After independence, the Government of India took up 49% of the airline. That happened in 1948. Then in 1953, the government bought a majority stake in Air India from Tata Airlines, though JRD Tata continued as its chairman till 1977. After nationalisation, the carrier was renamed Air India International Limited, with a focus on foreign operations.   

An Air India Dreamliner. Image courtesy: Facebook/Air India

However, Tata's interest in aviation never sagged. In the early 1990s, India started to allow private players in the aviation sector. This gave Tata the opportunity to come up with a plan a start an airline again, and as pointed out in a Bloomberg Quint article, in 1994, Tata moved to set up an airline with the help of Singapore Airlines and with 100 planes. The idea had to be scrapped as the government was not willing to allow a foreign player. 

Tata tried to regain control of Air India in 2000 when efforts were made to re-privatise the national carrier. However, the project had to be dropped following political opposition. A second attempt was made to hand Air India to a private player in 2018, but there were no takers at that time. 

Following this, the deal was considerably sweetened. The government now looks to offload its entire stake in Air India and its low-cost subsidiary Air India Express along with management control and also a 50% stake in AISATS, which operates cargo and ground handling services at major Indian airports. 

Also read -- Tata inches closer to acquiring long lost offspring Air India: Report

The current disinvestment process has witnessed several postponements, particularly considering the Covid situation. However, Air India Chairman and Managing Director Rajiv Bansal said in an office order to the employees on March 19 that the disinvestment exercise "has gathered pace", The Times of India reported.

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. 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. 

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 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. 

Air India's low-cost arm Air India Express is also up for grabs. Image courtesy: Air India Express

Considering Air India's financial woes, Civil Aviation Minister Hardeep Singh Puri had reiterated that the choice was between privatising or shutting down the airline.  

"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.

Also read -- Tata, SpiceJet promoter shortlisted as Air India's potential buyers: Report

However, despite its troubles, Air India continues to remain a valuable asset. The winning bidder would get 4,400 domestic and 1,800 international landing and parking slots at domestic airports, as well as 900 slots at airports overseas, according to PTI. Apart from lucrative airport slots, the new owners would also get some high-value long-haul international routes, top-end widebody aircraft like the Boeing 777-300ER, Boeing 777-200LR, Boeing 787-8 Dreamliner and Boeing 747-400, and last but not the least, a treasure trove of history.

(Cover image courtesy Wikimedia Commons/Mark Harkin)