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Exclusive | Adani Group eyes Air India, talks in preliminary stage

If the deal fructifies, it will mark the Adani group’s big-bang entry into the domestic airline market

February 24, 2020 / 07:13 PM IST

Billionaire industrialist Gautam Adani backed diversified conglomerate Adani group is weighing a potential bid for state-run carrier Air India, a source told Moneycontrol.

If the deal fructifies, it will mark the Adani group’s big-bang entry into the domestic airline market.

“The Adani group has engaged advisors and is evaluating submission of an expression of interest (EoI) at this stage. Their interest is preliminary and clarifications need to be sought from the government on the bidding process,” a source said.

Another source said the Adani group is looking at this opportunity, but is ‘yet to take a final call’. “With this transaction, the group can diversify and bolster their presence in the sector.”

Moneycontrol could not independently verify if the Adani group would go alone or be part of a consortium that would bid for the beleaguered airline.

In response to a query from Moneycontrol, an Adani Group spokesperson said, “As part of company policy, we do not comment on market speculation.”

In 2019, the Adani group forayed into airport operations and maintenance. It created a separate entity -- Adani Airports -- when it bagged bids on privatisation of six airports owned by the Airports Authority of India. The group won a 50-year contract for operation, management and development of the Ahmedabad, Lucknow, Jaipur, Guwahati, Thiruvanathapuram and Mangaluru airports. The six airports together handled 30 million passengers 23.6 million domestic and 6.4 million international) last fiscal, a YoY growth of 22 percent. The group has committed an investment of Rs 10,000 crore for the airport business by 2026.

As per the preliminary information memorandum released by the government, the deadline for submission of EOIs is March 17. The government is being advised by EY and law firm Cyril Amarchand Mangaldas.

The Tata Group, which operates Singapore Airlines and Air Asia, is also seen as contender for the mega deal. But on February 5, N Chandrasekaran, Chairman, Tata Sons, said it is ‘too early’ to take a call on Air India, in which the government has decided to sell its entire 100 percent stake. In 2018, the government had offered to sell 76 percent in the state-run carrier, but had failed to attract even a single bid.

In October 2019, a proposed deal between a Tata Group led consortium and GMR had faced a hurdle from the Airports Authority of India (AAI) which had opposed the transaction. The AAI cited its rule that bars groups that own airlines to also hold more than 10% in an airport operator. The deal was later called off and GMR struck a deal with France’s Groupe ADP.

Taking a closer look at the MaharajaAir India, along with its subsidiary Air India Express, commands 50.64 percent share of international traffic to/from India among Indian carriers and an 18.4 percent share, including global airlines, as of Q2 FY20. The two airlines combined control around 12.7 percent of the domestic market.

With a fleet of 121 aircraft, it covers 98 destinations (56 domestic destinations with around 2,712 departures per week and 42 international destinations with around 450 departures per week) as on November 1, 2019.

During FY19, AI carried around 22.1 million passengers and recorded operational revenues of around Rs 2,550 crore.

"At the time of closing of the proposed transaction, debt of Rs 23,286.5 crore will remain with Air India (AI) and Air India Express (AIXL), and the remaining debt of AI and AIXL will be allocated to Air India Assets Holding (AIAHL)," a government notification said. As of March 31, 2019, Air India had a total debt of around Rs 58,283 crore.

Under the bidding norms, control will be retained by a domestic entity with the stake buy for overseas investors capped at 49 percent. The government has also relaxed the bidding norms wherein net worth for the potential bidder has been fixed at Rs 3,500 crore, from Rs 5,000 crore earlier. The minimum stake for an individual consortium partner has also been lowered to 10 percent.

"It is a bold decision by the government to agree to a 100 percent stake sale. The move will entail cleaning up its balance sheet and ensure that the transaction is aligned to investors. The government is open to further changes or tweaks based on feedback,” says Kapil Kaul, India head at aviation consultancy CAPA.

Ashwin Mohan
first published: Feb 24, 2020 02:33 pm