Air India sale to be delayed; SpiceJet's Ajay Singh seeks more relaxations
DIPAM Secretary Tuhin Kanta Pandey said that there could be a little slippage in terms of time as far as the Air India disinvestment is concerned
The privatisation of Air India continues to get postponed as a second and more violent Covid wave sweeps across India. The process could be delayed by a few months in view of the pandemic and physical inspection of physical assets by the potential bidders, said Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management (DIPAM), which is the nodal body managing the entire exercise.
Pandey said that 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.
On the other hand, one of the bidders Ajay Singh, the promoter of low-cost carrier SpiceJet, has asked for an extension of the deadline to submit financial bids and relaxation of the bidding terms, such as waiver of the 'clean team' protocol, The Economic Times reported. Singh has requested access to Air India's Virtual Data Room (VDR), which contains sensitive internal documents, such as Air India's commercial arrangements with third parties and its financial and operational forecasts.
Singh has not been given the keys to the VDR under the 'clean team' protocol, which says that executives at rival airlines who wish to bid for the national carrier and currently hold operational responsibilities in their companies are not allowed to access Air India's VDR.
The SpiceJet Chairman and Managing Director (CMD) has, however, argued that he is bidding for Air India in his personal capacity and if he is denied access to the VDR, it would put him at a commercial disadvantage as the head of a consortium bidding for the airline.
Furthermore, Singh has sought an extension of 12 weeks from the time of the release of the Request for Proposal (RFP) for submitting financial bids, citing incomplete documentation in the VDR and the Covid surge, which has restricted the movement of resources deployed to conduct due diligence on the airline.
After two failed attempts in 2000 and 2018 respectively, the national carrier was put on the block again in January last year, with a significant dilution of the deal terms. The government offered to offload its entire stake in Air India and its low-cost subsidiary Air India Express along with management control and also give up its 50% stake in the ground handling unit AISATS.
The disinvestment process, however, continued to witness repeated postponements in the wake of the Covid-19 pandemic that broke out last year. The deal terms were subsequently further diluted with suitors being allowed to bid on Air India'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.
The national carrier finds itself in a financial mess. 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.
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.
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.
India's biggest conglomerate Tata Group, which had essentially founded Air India before independence, and which had earlier made attempts to acquire Air India back, is being widely considered as the frontrunner in the race to purchase the national carrier.
(Cover image courtesy: Wikimedia Commons/Aero Icarus)