New Delhi: Debt clean-up, foreign airline investment, complete government exit, integrated network and comprehensive disclosure will be key to a successful Air India Ltd disinvestment, a new report has said. 

Consulting firm CAPA in a Wednesday report said these five issues will be key as the Air India sale process moves forward. 

Clean-up the balance sheet: This is the most important step. The airline can never be viable in its current avatar due to its massive debt and interest burden. The core divestment should consist of the airline operations only, namely Air India, Air India Express and optionally Air India Regional. They should be sold along with aircraft-related debt and reasonable working capital loans. 

Special business units, including MRO (Air India Engineering), catering (TajSATS), ground handling (both Air India Air Transport Services and AISATS) and Centaur Hotels, should be sold off separately to raise capital that can be used to retire debt. Property and other non-core assets should be placed in a separate special purpose vehicle.

Divest 100% of the airline: The government should exit Air India completely. Any level of equity retention will deter investors due to concerns about the prospect of continued government interference post privatisation. 

Allow foreign airlines to participate: Global carriers should be permitted to invest up to 49% as per the norms for the sector. No major Indian corporation from outside aviation will invest in such a complex project without an experienced strategic partner. Allowing foreign airlines to participate will increase the number of interested bidders and the valuation.

Offer a single integrated network: The domestic and international operations should be offered in one line, as there is significant value in the feed which they provide to each other. Air India is also part of a global system as a result of its membership of Star Alliance. Separation of domestic and international operations will result in reduced interest.

Provide comprehensive disclosures: The data room should include detailed information on Air India’s finances and labour contracts (including any ongoing negotiations) as these are two of the most sensitive issues that will impact interest and valuations. A large proportion of the technical staff are due to retire within the next 5-10 years which is an issue that the new owners will need to prepare for.

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