India’s oldest airline, Air India Ltd, is set to mandate Delhi-based real estate consultant DTZ International Property Advisors Pvt. Ltd to help it raise money by selling, leasing or redeveloping its real estate assets, according to airline and property consultancy executives.
The exercise is expected to help the debt-laden company raise at least Rs.500 crore in the current fiscal and Rs.5,000 crore in 10 years by monetizing some of its 105 properties, three of which are overseas.
“Air India has shortlisted DTZ to be its real estate consultant. The talks will be finalized soon,” a person familiar with the development said.
A top DTZ official admitted the company “is talking to Air India, but nothing has been formally signed as yet”. Both spoke on condition of anonymity.
An Air India spokesperson declined comment.
An Air India executive, who spoke on condition of anonymity, claimed the airline had issued a letter of intent to DTZ and that in the first stage, it would seek to monetize 12 properties.
This person added that the monetization could take place through an outright sale, redevelopment, or the creation of a joint venture with a private developer to develop and market the property.
Air India shortlisted four consultants—Jones Lang LaSalle, Cushman and Wakefield India, DTZ International Property Advisors and Colliers International—after submission of financial bids in October. At that stage, Jones Lang LaSalle emerged the front runner, the rest of the bidders said then.
A senior executive from one of the shortlisted companies also confirmed that discussions between DTZ and Air India were in the “last lap”.
Air India had debt of Rs.43,777 crore on its books on 31 December. It has also accumulated losses of Rs.27,000 crore over the past five years. The government in April approved a Rs.30,000 crore package to bail out the loss-making carrier; this includes an upfront equity infusion of Rs.6,750 crore and assured equity support of Rs.23,481 crore until 2020-21.
Selling and leasing some of its real estate will help the airline meet some of the conditions set by the government for the bailout, said a second Air India executive.
“This will help Air India achieve the milestone set by the government of India to qualify for the bailout package and retire some of the long-term debt sitting on its balance sheet and save interest cost,” added this person, who asked not to be identified.
The properties for monetization include Air India’s office, reservations building at the airport and staff housing in Vasant Vihar, all in New Delhi; and staff housing in Navi Mumbai and Chennai. The company is also planning to monetize its properties in London and Tokyo.
In October, Air India floated a separate tender to rent out its iconic headquarters at Nariman Point in Mumbai. A third Air India executive, who too spoke on condition of anonymity, said the state-run airline has received several attractive bids from state-owned firms, especially banks and financial institutions, to lease several floors of this building.
In a 2011 report, Jones Lang LaSalle India said Air India owns collector leasehold rights to the most strategically located and prominent building along Marine Drive.
Referring to the Nariman Point building, it said the property measures approximately 220,000 sq. ft, consisting of a ground floor plus 22 storeys on collector lease. Air India can earn up to Rs.80 crore in rentals per annum from the building; if monetized for capital value, the building can fetch up to Rs.800 crore, the report said.
“The Air India building is definitely a rare and valuable office space asset. Considering the challenges the national carrier is facing, any delay in its efficient use in terms of commercial space utilization is a national loss,” it added.
The Air India mandate requires the property consultant to advise it on monetizing select properties, redevelopment and leveraging of properties for revenue generation.
The consultant will also be expected to provide all the services required for valuation, legal, architectural study and real estate solutions, including appointment of developers—for the proposed commercial development or multi-functional complexes—who will design, finance, construct, market and maintain the complexes, and pay Air India upfront lease premium for developments rights.
Air India is not the only carrier that is encashing its real estate assets to generate cash.
India’s second largest airline by passengers carried, Jet Airways (India) Ltd, has signed an agreement with a unit of real estate company Godrej Properties Ltd to jointly develop a plot of land in the Bandra Kurla Complex in Mumbai.
Jet Airways had bid Rs.826 crore for the right to develop the plot in an auction by the Mumbai Metropolitan Region Development Authority, the apex body for planning and coordination of development activities in Mumbai, in 2008.
The carrier signed the deal with Godrej Buildcon Pvt. Ltd. Jet Airways got Rs.500 crore upfront from the deal that helped the carrier to liquidate some of its working capital loans.