Govt may defer Air India sale, reduce debt to sweeten the deal
The government may defer the planned sale of Air India by up to three years until the turbulence caused in the aviation industry by the Covid-19 pandemic eases, two persons aware of the development said. Another option under consideration is sweetening the deal by reducing the Air India debt liability that a prospective buyer of the airline would assume.
Experts engaged in the process of divesting Air India have pointed to the lukewarm response by investors to the existing offer on the table and suggested that the government consider extending the October 30 deadline for submission of bids,reduce the debt liability of Rs 23,286 crore or allow bidders to place a value on the government’s equity stake and say how much how much debt they would assume, the two persons said on condition of anonymity.
The government has already trimmed the debt liability that a buyer would need to assume by more than half. It has extended the deadline for bid submissions four times. The other options before the government is to defer the national airline’s sale by two to three years to let the investment climate improve or wind up its operations, the two persons cited above said.
“The option of allowing bidders to quote both debt and equity value appears practical in the current domestic and global business environment, but a final call will be taken by the competent authority,” one of the two persons said.
A group of secretaries is expected to discuss the topic again this week before the matter is referred to a ministerial panel headed by home minister Amit Shah to take a final call, the persons said. Other members of the panel, called Air India Specific Alternative Mechanism (AISAM), are the ministers for finance, commerce and civil aviation.
The government has already trimmed the debt liability of a potential buyer. It decided to transfer a significant portion of the total Rs 60,074 crore debt of Air India to a special purpose vehicle, Air India Assets Holding Ltd, and limited the debt exposure that a buyer would face to Rs 23,286 crore.
The finance ministry and the Department of Investment and Public Asset Management (DIPAM) did not respond to email queries seeking comment.
Participating in a debate on the Aircraft (Amendment) Bill, 2020 in the Rajya Sabha on Tuesday, Hardeep S Puri, minister of state for civil aviation, said a sale is the last resort to keep Air India alive. “Talking about privatisation of Air India, if we could help it, we would keep it, but with Rs 60,000 crore debt, the choice is not between privatisation and non-privatisation. Some of my colleagues must realise that the choice is between privatisation and closing down.”
Investors’ interest has dimmed because of the Covid-19 pandemic, experts said. Domestic and international air traffic to and from India may decline by at least 50% in the current financial year, causing significant job losses and forcing some airlines to ground aircraft, HT reported earlier this year.
Nilaya Varma, co-founder and CEO of consulting firm Primus Partners, said: “Under normal circumstance, given the baggage, disinvestment and valuation of Air India would have been challenging, something made worse by the prolonging pandemic...
“It is also important to consider additional sops and support to make sure AI remains a going concern. The other option is to cough up funds to maintain current operations, which is difficult given the fiscal pressure and the uncertain future.”
According to Divakar Vijayasarathy, founder and managing partner at consulting firm DVS Advisors LLP, the government will be under duress to extend the deadline beyond October 30 given that there has been no submission of an expression of interest by a potential buyer. He said the operating cost of Air India is higher than that of other airlines by more than 20%.
“The debt of Rs 23,000 crores is secured against the fleet. Hence the government may not be able to simply move the debts to the SPV without the underlying security. The government would most likely raise funds and pay off the debts to make the fleet debt-free,” Vijayasarathy said.