Air India suitors to be intimated by January 5; no change in bid deadline
The DIPAM announced amendments to clause 10.17 of the preliminary information memorandum (PIM) regarding the disinvestment of Air India
The Department of Investment and Public Asset Management (DIPAM) has issued the 10th corrigendum with regard to the strategic disinvestment of Air India, extending the date for intimating qualified interested bidders (QIBs) to January 5, 2021, from December 28, 2020. The deadline for expression of interest (EoI) has, however, been kept unchanged at December 14.
The DIPAM on December 10, announced amendments to clause 10.17 of the preliminary information memorandum (PIM), PTI reported. The interested entities would have to submit their physical bids within 15 days from the EoI deadline.
Source: Ministry of Civil Aviation
In January this year, the government had called for a 100% stake sale of the loss-making and debt-ridden national carrier. Air India's 100% shareholding in the low-cost carrier Air India Express and 50% stake in the ground-handling arm Air India SATS Airport Services was offered too. This was after the government's effort in 2018 to offload 76% equity share capital of Air India and give up management control found no takers.
However, the deadline for submission of bids has seen repeated extensions, not least because of the situation created by the Covid-19 pandemic and havoc it has caused in the aviation industry across the world. So while the initial deadline was March 31, it was extended to June 30, then August 31, then October 30 and now to December 14.
Further sweetening the deal, in an effort to enthuse investors, the government had also announced that the bidding would take place on the enterprise value, instead of the equity value, of the airline. While the enterprise value of a company includes its equity value, debt and cash with the company, its equity value is the value of the company’s shares. What that means is that the investors would have the flexibility to absorb the amount of debt they want.
The robust Air India Express will also be sold along with Air India. Image courtesy: Air India Express
According to the expression of interest (EoI) floated by Department of Investment and Public Asset Management (DIPAM) in January, the buyer would have to absorb Rs 23,286.5 crore, or more than 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.
Out of whatever the enterprise amount that the bidder quotes, 15% would have to be given to the government as the price of Air India and 85% would be debt that the winning bidder would absorb, civil aviation secretary Pradeep Singh Kharola was quoted as saying by PTI. The willing bidder would have to pay 15% of the quote as upfront cash payment, disinvestment secretary Tuhin Kanta Pandey said, according to a Business Standard report.
According to the DIPAM's replies to clarifications sought by interested bidders on the PIM, on the date of closing of the transaction, the debt, which is lower among 1) the outstanding debt of Air India and Air India Express combined, and 2) 85% (or lower) of the enterprise value quoted by the financial bidder would be debt retained. The remaining debt would be allocated to the AIAHL.
According to a Live Mint report last year, Air India witnessed a record loss of Rs 8,556.35 crore in 2018-19 and had not seen profits since its merger with Indian Airlines in 2007-08. It is surviving on taxpayer money. According to Air India Chairman and Managing Director Rajiv Bansal, the airline could end up making a loss of around Rs 8,000 crore this fiscal.
Unlike its struggling parent, Air India Express has been performing far better, even in this time of the pandemic. The budget carrier reported its highest-ever net profit of Rs 412.77 crore in FY20, according to a Hindu Businessline report. This is its fifth consecutive year of profit.
Air India Express had first turned profitable in 2015-16 with a net gain figure of Rs 362 crore. It reported net profits of Rs 297 crore in 2016-17, Rs 262.05 crore in 2017-18 and Rs 169 crore in 2018-19. Notwithstanding market headwinds due to Covid-19 in the last quarter of FY20, the operating revenues of Air India Express grew by 25% from Rs 4,172 crore in FY19 to Rs 5,219 crore in FY20. Passenger numbers increased by 11%, from 4.36 million in 2018-19 to 4.84 million in 2019-20.