Air India Stake Sale Plan Takes Wing

air india

In a bid to make debt-ridden Air India (AI) more attractive for buyers, the government on Monday announced it would give up a 100% stake in the national carrier. The deadline for submitting the Expression of Interest (EoI) is March 17.
This is the second attempt in two years by the Narendra Modi-led government at privatizing the national carrier.

In 2018, the government proposed to offload 76% equity share capital of the national carrier as well as transfer the management control to private players. However, there were no bidders.

The government has invited EoI for the proposed strategic disinvestment of Air India while setting out conditions for the same.

Any private or public sector company can participate in the bidding process provided that it meets minimum Networth (Rs 3,500 crore) and the ability to consume debt (Rs 23,286.5 crore debt).

The new buyer will get a total of 146 aircraft, 56% of which are owned by the airline group, while the remaining are on lease.

It will also benefit from as much as 50% of the international market share held by Indian airlines as well as the airline’s 4,400 airport slots at airports in the country and 3,300 slots in 42 countries, which will be available at least for six months after the sale is complete.

As many as 9,617 permanent employees, including pilots and cabin crew with deep technical and operational expertise, will be up for grabs along with the airline’s brand as well as the famous “Maharaja” and “Flying swan” logos.

The successful bidder will get total management control of the airline along with other entities (Air India Engineering Services, Air India Air Transport Services, Airline Allied Services and Hotel Corporation of India) which are in the process of being transferred to a separate company — AIAHL and will not be a part of the Proposed Transaction.

AISATS, which is an equal joint venture between Air India and Singapore Airlines, offers ground handling services. Besides, Air India has interests in Air India Engineering Services, Air India Air Transport Services, Airline Allied Services and Hotel Corporation of India.

Ernst and Young LLP India have been appointed as transaction advisors by the Centre for advising and managing the proposed strategic disinvestment of Air India.

Global aviation consultancy firm the Centre for Asia Pacific Aviation (CAPA) termed the government’s decision to sell a 100% stake in AI in a “bold reform” and said it expects “significant” response from the prospective bidders.

Industry sources state that some of the potential bidders could be Tata Group, Hindujas, IndiGo, SpiceJet, Vistara and a few private equity firms.

Some of the foreign airlines could tie-up with local players to place their joint bids.

The new is likely to offer significant investor interest for Air India given its wide domestic and international network, traffic rights, slots at key foreign airports such as London and Dubai, technical manpower and a large fleet.

Foreign airlines such as Etihad and Qatar Airways could tie-up with local players to place their joint bid to buy out the public sector carrier.

The Modi government’s move to sell Air India and its subsidiaries had failed in 2018 as not a single private party evinced interest.

While it had earlier offered 76% in the airline along with management control, the government has offered to sell its entire stake in the airline this time.

Net net we believe that despite having a huge workforce and large debt and being a high-cost player in the industry Air India still boasts of some very strong assets which look attractive from a long term point of view.

This deal looks interesting from the fact that in case any of the existing private airlines players decide to take this offer it would mean further consolidation in the airlines sector thus enabling a bigger monopoly happening here which may not be good for customers but definitely would benefit the entire sector from falling margins and greater pricing power ahead.

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