The Government of India (GoI) will completely exit Air India, including in units Air India Express (AIXL) and Air India SATS (AISATS), in what is seen a major step to ensure success in its second attempt at divesting the national carrier.
"The GoI has given an ‘in-principle’ approval for the strategic disinvestment of Air India by way of transfer of management control and sale of 100 percent equity share capital of AI held by GoI, which will include AI’s shareholding interest of 100 percent in AIXL and 50 percent in AISATS," the expression of interest (EoI) document released on January 27 stated.
The government has appointed EY to advise and manage the proposed transaction. The last date to submit the EoI is March 17, and the government will intimate the qualified bidders by March 31.
A successful sale of Air India is imperative for the government to meet its disinvestment target. Moreover, the airline, which is dependent on government largesse to run its operations, needs a new owner to keep flying.
Its earlier attempt in 2018, when the government had offered to sell 76 percent stake, had come a cropper.
The national carrier, whose net loss in FY19 had ballooned to Rs 8,556 crore from Rs 5,348 crore in the preceding year, has total liabilities of over Rs 52,000 crore. To attract additional suitors this time, the government has already parked nearly Rs 30,000 crore of debts and liabilities in a special purpose vehicle (SPV).
The new owner of the airline will be left with only Rs 23,286 crore worth of debt, taken mainly for aircraft purchases and currently secured against government guarantees. The guarantees will lapse once the new buyer takes over.
While AIXL is the profitable low-cost arm of Air India, which flies to short haul international destinations, AISATS is a joint venture that provides ground and cargo handling services. The Centre holds 50 percent stake in AISATS.Strengths
Air India, India's first airline, brings with it immense strength in terms of its network, infrastructure and brand recall.
Though its market share has been dwindling, the combine of Air India and AIXL will command an overall share of 18.6 percent of the international market.
The combined airline, with a fleet of 146 aircraft, will fly to 57 domestic and 45 international, destinations. More importantly, the new owner can dip into Air India's significant slots (domestic slots: 4,486, international slots: 2,738) and code share agreement with 25 airlines.Weaknesses
Apart from the huge financial burden, Air India's employee to aircraft ratio is also on the higher side.
The airline, which has about 14,000 employees, has a ratio of 133 employees per aircraft. IndiGo, on the other hand, has a ratio of 108.
The EoI document, however, points out that "around 36.05 percent of the permanent employees of AI will be retiring in the next five years."
In terms of its fleet, though the average age of the aircraft of the combined airline is eight years, industry observers point out that Air India has a high percentage of older planes.Suitors
The Tata Group has a natural interest in Air India, which started off as Tata Air Services in 1932. In recent interviews, Tata Sons Chairman N Chandrasekaran has not ruled out of the option of the group considering a possible bid for Air India.
The Group already has interests in aviation through two joint ventures in Vistara and AirAsia India.
Other names that have come up include IndiGo, the Hinduja Group - which made a brief appearance in the Jet Airways insolvency, and SpiceJet.
While some of these airlines may look too small to bid, they could form a consortium with PE investors or sovereign funds.
Air India may see suitors from overseas too, though some of them, including Qatar Airways, have ruled out that option.