Aviation consultancy firm CAPA India on Wednesday said government's latest move to divest its stake in national carrier Air India Ltd is expected to garner strong interest, especially from leading global carriers who could potentially tie up with large Indian conglomerates to bid for the airline.
"Interest is likely to be strong this time around. CAPA does not rule out the possibility of some leading global carriers – including those from the Gulf – participating in the tender, in a JV (joint venture) with large Indian conglomerates," CAPA India said in a report, Divestment of Air India: Revisiting Key Success Factors, which was released on Wednesday.
"The current global and national economic environment, and geo-political instability may have some impact on investor sentiment. However, the outlook for the performance of Indian carriers remains
positive, especially in light of the suspension of Jet’s operations and the recent softening of oil prices," the report added.
During 2018, the government failed in its attempt to sell a 76% stake in loss-making Air India due to a lack of interest from bidders, but said it would return with an alternative proposal soon.
However, the government had in June 2019 said that its plans to sell debt-laden state-run carrier Air India were still on track for 2019-2020.
The government's optimism to sell its stake in Air India comes from the fact that Brent Crude prices have fallen 12.23% during the last 12 months. The crude price stood at $65.17 a barrel on Wednesday, down from $74.25 a barrel during the year ago period, according to Bloombergdata.
CAPA India in its report said that Air India's divestment should consist of the airline operations only, namely Air India, Air India Express and optionally Air India Regional, which should be sold along with aircraft-related debt and reasonable working capital loans.
"Special business units - such as MRO (Air India Engineering), catering (Chefair), 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," it said, adding that the government should exit Air India completely and that any level of equity retention by the state will deter investors due to concerns about the prospect of continued government interference post privatisation.
Air India currently has over Rs55,000 crore debt. The government had in February 2019 approved creation of special purpose vehicle (SPV), Air India Asset Holding Ltd (AIAHL), to house Rs29,464 crore debt of the airline as well as its non-core assets, painting and artifacts and other non-operational assets.
CAPA India said in its report that Air India represents an attractive opportunity for investors if it is relieved of its working capital debt, which amounts to close to Rs30,000 crore.
“The offer does not need to be accompanied by any assurance that seat entitlements for foreign carriers will be temporarily frozen to provide competitive breathing space. In fact, bilateral policy should be opened up. A commercially-run, debt-free Air India no longer needs to be protected," CAPA India added in the report.