Centre puts entire stake of Air India on the block
The government on Monday announced a plan to sell its entire stake in Air India, renewing its attempt to sell the state-owned airline after a similar move in 2018 failed to attract any bidder.
A document released by the government on Monday invited initial expressions of interest (EOI) in the airline and set March 17 as the deadline for the submissions. The Air India Specific Alternative Mechanism (AISAM), headed by Union home minister Amit Shah, approved the release of the preliminary information memorandum (PIM) for inviting EOI for the disinvestment move.
Civil aviation minister Hardeep Singh Puri said the airline was a “great asset” and its position was “fragile” due to heavy debt. He said Air India, as a brand, will continue to fly but it needs to be privatised.
“Due to its accumulated debt of about ₹60,000 crore, its financial position is in a very fragile condition and Air India is currently under a debt trap. Any private investor can turn it around and make Air India a profitable venture by bringing operational as well as financial efficiencies. The government has limited financial resources whereas the private investor can bring the required capital to make it turnaround. We hope and wish that Air India remains a vibrant airline and fly forever,” Puri said.
Monday’s announcement only marks the first of a multi-stage process. The government has given time till February 11 for the submission of written queries on PIM and the share purchase agreement (SPA) while the last date for submission of the expression of interest is March 17. It will announce the qualified bidders on March 31 following which the Request for Proposal (RFP) will be issued. The government has not yet announced the date for the RFP stage.
The move is also a politically contentious one. The Congress criticised the Centre over the move. “The sale of Air India has been going on for the last six years since 2014 when this government assumed office. A special group of ministers (GoM) was formed to look into it. Five ministers deliberated on it. If the government seriously wants to sell Air India, they should look for a real investor and have to go for a real strategic sale. The government has been misleading on the issue,” Congress spokesperson Supriya Shrinate said.
CPI general secretary D Raja blamed the government’s “bad policies” and maintained that the national carrier has the potential to emerge as a powerhouse in the aviation sector.
Experts also said the timing of the Centre’s move amid an economic slowdown could pose a challenge.
“While divestment is a positive step, it has to be when you have a strong platform, not with a wobbly economic base. After the first failed attempt, it makes sense for the government to divest and find a company that can help make the Maharaja stronger... And this should be done especially when we have a positive economic climate. At the moment, the investment sentiment with India is not conducive… There are several external risk factors also in aviation such as oil prices, the Iranian crisis and the corona virus outbreak, etc.,” said Mark Martin, founder and CEO of Martin Consulting, an aviation consultancy.
As part of the strategic disinvestment, Air India plans to sell its entire stake in Air India Express and 50% shareholding in equal joint venture Air India SATS Airport Services (AISATS). All the three will be sold together and management control of the national carrier will be transferred to the investor, the government said. The government previously offered only 76% of its stake for sale.
In November, Puri told Parliament that the national carrier, which loses ₹26 crore a day, would have to shut down if it was not privatised. In 2018-19, Air India’s net loss was provisionally estimated at ₹8,556.35 crore. It has a debt of over ₹60,000 crore, half of which has already been taken out of the books and parked in a special purpose vehicle, Air India Assets Holding Ltd.
In its latest plan, the government will target selling its entire stake in the airline and 50% of a ground handling unit. The successful bidder will have to take only a debt of ₹23,286.5 crore (the 2018 offer required them to take on a little over ₹33,000 crore) , while the liabilities will be decided depending on current assets at the time of closing of the transaction, according to the PIM. The remaining amount of the total ₹60,074 crore debt, as on March 31, 2019, will be transferred to the special purpose vehicle. The firm’s land and buildings at the Delhi and Mumbai airports and the corporate office, which are core assets for running the airline, will be given to the new investor on a right-to-use basis for a limited period, the document added.
Puri said that after no bids were received for the national carrier in the first attempt made in 2018, the government learnt its “lessons and analysed critical areas to make the current disinvestment bid more attractive to the prospective Interested Bidders (IBs)”. The government in 2018 called bids for a 76% stake sale in Air India including 100% in subsidiary Air India Express and 50% holding in ground handling company AISATS but failed to get even a single bid amid reports of a consortium of Indigo (Interglobe Aviation) and Qatar Airways being interested.
Air India and Air India Express had combined revenue of ₹30,632 crore in 2018-19, which is the highest among Indian carriers, Puri said.
The government said it was committed to paying certain employee-related dues before the closing of transaction. The total employee strength of the two companies is 17,984, out of which 9,617 are permanent employees. About 36% of the permanent employees will be retiring in the next five years, Puri said.
The government has relaxed the bidding norms wherein net worth for potential bidders is fixed at ₹3,500 crore and minimum stake for an individual consortium partner is lowered to 10%. The net worth criterion was ₹5,000 crore in the 2018 bid document.
Another key change is that an entity can put in a bid on the “strength of its parent”, which means that an entity floated by a big corporate can participate in the disinvestment process, a person aware of the PIM details told Press Trust of India.
Staff dues of about ₹1,383.70 crore on account of Justice Dharmadhikari Commission’s recommendation on past arrears will be paid by the government.
As per the conditions decided by AISAM, the liabilities to be retained in Air India will be equal to certain current and non-current assets.
(With inputs from agencies)