BackGovt sweetens Air India deal, offers 100% stake, lower debt
Airline, ground handling unit’s liabilities reduced to around ₹23,287 croreThe government will also sell the state-run airline’s low-cost unit, Air India Express, and ground handling unit Air India SATS
PremiumNEW DELHI : The government on Monday invited offers from investors for its entire stake in Air India Ltd, after a costly turnaround plan and a previous effort to sell a controlling stake in the national carrier failed.
The government will also sell the state-run airline’s low-cost unit, Air India Express Ltd, and ground handling unit Air India SATS (AISATS), a joint venture between Air India and Singapore Airport Terminal Services.
After last year’s offer to sell 76% stake in Air India drew a blank, the government has now offered its entire 100% stake in Air India, Air India Express and 50% stake in AISATS for sale.
To sweeten the deal, the government has also reduced the debt on the two companies’ books to about ₹23,287 crore, which gives certainty to investors about the liabilities of the companies. About ₹56,334 crore of liabilities of the two companies, the bulk of which is Air India’s, will be transferred to a special purpose vehicle, Air India Assets Holding Ltd, created to park the debt and certain assets.
The minimum net worth criterion to bid for Air India has been set at ₹3,500 crore, but the government has allowed domestic carriers with negative net worth to put in bids on the strength of their consortium partners if the local airline’s share in the consortium is limited to 51%.
Civil aviation minister Hardeep Singh Puri said the government is open to “revising and refining" the terms of sale based on suggestions from investors. The willingness to tweak the terms of sale signals that the government will be responsive to the expectations of potential investors. If the sale goes through, it will prove to be a relief for the government, which has been bankrolling the national carrier with taxpayer funds.
Puri said Air India’s current financial position, burdened by an accumulated debt of about ₹60,000 crore, can be described as “very fragile", but any private investor could turn the airline around and bring operational and financial efficiency.
“We hope Air India remains a vibrant company and continues to fly forever," he said.
Briefing reporters, Tuhin Kanta Pandey, secretary in the department of investment and public asset management, said Air India’s debt liabilities, contingent liabilities and corporate guarantees totalling ₹56,334 crore will be transferred to the SPV, Air India Assets Holding. “The debt (of the airlines) is frozen at ₹23,287 crore. Any extra debt which is being incurred beyond this, post that date will be borne by the SPV," he added. The government will retire the debt of the asset holding company by selling assets transferred to it.
“The debt that is left with Air India now is backed by assets of the airline, which include aircraft. The new owners of the airline have the option of conducting a sale and leaseback (SLB) of its aircraft to make the company debt-free," a person directly involved with the national carrier’s sale process said on condition of anonymity.
Air India and Air India Express together have more than 150 aircraft. While at least 82 of these aircraft are owned by the national carrier and its subsidiary, the rest are leased. SLB allows the owner of an aircraft to sell the asset and lease it back. Such deals remove the aircraft, and its associated debt, from the balance sheet of an airline.
EY India is the transaction adviser for the sale process.
According to government officials, potential investors can send in queries on the sale process from 28 January till 11 February. The government will answer the queries by 25 February, while the respective expressions of interest will have to be submitted by 17 March. The qualified bidders will be informed by 31 March, when the process for submission of financial bids will also begin.
“Liability of retiring employees will be clarified at the RFP (request for proposal) stage," Puri said." The government has committed to pay some employee-related dues before closing the transaction."
“All land and building assets and art and artefacts are not part of the offer," he added.
Civil aviation secretary Pradeep Singh Kharola said the government has conducted at least eight roadshows across the globe to reach out to potential investors. “The basic purpose was that we wanted to get a feel of the market and to get suggestions. These have been duly factored in the bids," he said.
“The biggest difference is that now we are selling 100% of the government’s stake in Air India, and not 76%," Kharola said, clarifying that now the debt that will stay with the companies at the conclusion of the deal has been fixed.
Air India, which had a 12.7% share of the domestic market, carried 18.36 million domestic passengers in 2019, according to data from the Directorate General of Civil Aviation. It had ferried 17.61 million domestic passengers in 2018.
“A lot of people have come to us directly, to express interest, offer their suggestions. In my view, there is a lot of interest. We are entering the process in a qualitatively different way than in 2018," Puri said.
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