Air India privatisation finally picks up pace after repeated stutters

Union Finance Minister Nirmala Sitharaman had said that the sale of Air India would be completed during 2021-22

Air India privatisation finally picks up pace after repeated stutters
An Air India Airbus 320Neo. Image courtesy: Wikimedia Commons/Mike Burdett

The Air India privatisation process may have finally picked up momentum after missing several deadlines since the airline was put on the block in January last year. With this, it is being expected that the entire process would be completed by the end of this year. 

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.

The Centre is reportedly planning to invite financial bids for the ailing national carrier by the end of March 2021 and conclude the privatisation process in the second half of 2021. The shortlisted bidders may be given time till June or early July to submit their financial bids, CNBC-TV18 reported. The final privatisation may take place in another three-four months after the financial bids would be evaluated.

The government moved to sell Air India in 2020, after two failed attempts in 2000 and 2018. This time around, the government came up with a sweetened deal, offering to give up management control and offload its entire stake in Air India and its low-cost arm Air India Express along with its 50% stake in the ground-handling unit AISATS. 

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According to the expression of interest (EoI) floated by the Department of Investment and Public Asset Management (DIPAM) in January, the buyer would have to absorb Rs 23,286.5 crore, or around one-third of the airline's total debt, while the rest would be transferred to the Air India Assets Holding Ltd (AIAHL) -- a special purpose vehicle.

The minimum net worth criterion for potential bidders was also relaxed to Rs 3,500 crore from Rs 5,000 crore in 2018.

Owing to Covid-induced uncertainties, the initial deadline of March 17 for receiving preliminary bids was pushed first to June 30, then to August 31, then again to October 30 and finally to December 14. Diluting the deal terms even further, the government allowed bidding on the enterprise value (EV) of the carrier instead of the equity value, giving the bidders the option to decide on how much debt they want to absorb and the cost they would pay for the carrier.

The disinvestment process continued to get stretched, as the government took its time to notify the qualified interested bidders (QIBs). The deadline for doing so, which at first was set at December 28, 2020, was postponed to January 5, 2021. That deadline was extended too. According to a News18 report, the QIBs were to be intimated on January 30, 2021, but no announcement came on that date. A reason for the delay could be the intense scrutiny that the initial bids are going through.   

Earlier this month, the consortium of Air India employees had to bid goodbye to their hopes of owing the airline, as it was disqualified by EY -- the transaction advisor to the Government of India -- from progressing to the second stage under which the eligible bidders would be asked for a request for proposal (RFP), which is nothing but financial bids.

India's largest conglomerate Tata group, SpiceJet Chairman and Managing Director Ajay Singh and Kolkata-based businessman Pawan Ruia are still in the hunt for the national carrier, according to reports. SpiceJet's Singh had shown keen interest in the national carrier, The Economic Times had reported. 

The government had said earlier that there were "multiple expressions of interest" for Air India, which boasts of lucrative long-haul international routes and airport slots, some top-end widebody aircraft like the Boeing 777-300ER, Boeing 777-200LR, Boeing 787-8 Dreamliner and Boeing 747-400, and is steeped in history. 

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Under the revised rules, shortlisted players would have to bid on 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. 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. 

However, the players involved still do not have clarity on the quantum of debt and assets that would be part of the takeover, according to a report in Business Today. The bidders are also worried about what conditions the government would impose in terms of the payment schedule and people. According to a source quoted by the magazine, buyers may be unwilling to take any risk if they do not get a clean asset and a free hand to turn it around. 

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 the merger with Indian Airlines in 2007, beating the record Rs 8,500 crore loss in 2018-19, The Economic Times reported. 

Union Finance Minister Nirmala Sitharaman, in her Budget speech in February, had said that the privatisation of Air India would be completed during 2021-22. The government hopes to raise Rs 1.75 lakh crore from the disinvestment of Air India and other public sector undertakings in 2021-22.

The bids for the national carrier are likely to be under Rs 20,000 crore and the government could get around Rs 3,000 crore in cash, according to a Financial Express report. 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.

(Cover image courtesy: Wikimedia Commons/Mike Burdett)