By: Ramesh Vaidyanathan and Mansi Singh
Government of India invited expressions of interest (EOI) last month for the sale of Air India, its subsidiary Air India Express and a 50% stake in Air India SATS Airport Services Private Limited, a JV of Air India and Singapore Airport Terminal Services. The disinvestment process will be implemented through open competitive bidding, with the last date for the submission of EOI being March 17, 2020.
So what is different this time?
In the earlier sale attempt in 2018, the government sought to retain 24% of the carrier, which was widely speculated to be the spoiler. This time around the government is looking to exit completely and the terms of the sale have been made more attractive. In the new EOI, the minimum net worth requirement for bidders has been reduced to INR 35,000 million (approx. USD 486 million) from INR 50,000 million (approx. USD 694 million) in the previous round. The EOI also dispenses with the requirement of having a positive profit after tax in at least three of the immediately preceding five financial years. The lock-in period for the shares acquired has been reduced from three years to one year.
Significantly, each member of the consortium is only required to hold a minimum of 10% interest in the consortium and atleast 10% equity of the company (special purpose vehicle) to be promoted by the members of the consortium for acquiring the government’s stake. Further, the minimum shareholding requirement of the lead member has been reduced from 51% to 26%. These changes are expected to provide greater flexibility to bidders in the formation of consortia.
Air India also has interests in Air India Engineering Services, Air India Air Transport Services, Airline Allied Services and Hotel Corporation of India. These entities are in the process of being transferred to a separate company, i.e., Air India Assets Holding Ltd. (AIAHL) and will not form a part of the proposed sale. The EOI provides that the debt of INR 2,32,865 million (approx. USD 3234 million) will remain with Air India and Air India Express and the balance debt will be moved to AIAHL. A major constituent of Air India’s debt is aircraft loans and the interest on its enormous debt.
Why is this a ‘do or die’?
The government appears bullish on finding a suitor, now that the deal has been significantly sweetened. The collapse of full service carrier Jet Airways is also expected to help enhance interest in Air India. Air India and Vistara are presently the only full-service carriers in India and the successful bidder will have ready access to the 146 aircraft in Air India’s fleet (82 of which are owned by it), worldwide bilateral rights and the much coveted domestic as well as international slots. Also, Air India is a member of Star Alliance, the world’s largest global airline alliance.
As per media reports, those interested could include the Tata Group, Hindujas, IndiGo, SpiceJet and a few private equity firms. Given the attractive terms of the sale, ready access to wide domestic and international network, traffic rights, slots at key foreign airports, qualified manpower and large fleet, this may perhaps be the best opportunity to take a plunge into the world’s fastest growing aviation market.