Air India sale: A previously rejected plan resurfaces as a fall-back option

The fall-back option under discussion is to allow Air India Express to raise money through the market by listing on the bourses

Stoic acceptance has replaced dogged resistance at national carrier Air India (AI) as the airline’s 12,000-odd employees await their fate. In fact, as the months have rolled on, certain employee categories — in particular the pilots and technically qualified staff — who are fed up with the status quo (no motivation, sharp cut in salaries and a general air of defeat) would rather the airline moves into the hands of own­ers who can resuscitate it and deliver them a better future.

The airline is now expected to be sold by September to one of the two bidders who have expressed interest: The Tata group and the consortium led by Ajay Singh, chairman and managing director of SpiceJet, in his personal capacity. Failure to sell would mean “closure”, according to Civil Aviation Minister Hardeep Singh Puri, even though Air India is currently at its leanest and in some ways neatest. The present airline Chairman and Managing Director, Rajiv Ban­sal, has reduced staff count and costs wherever he could in preparation for the sale.

But many employees, financial experts, analysts and observers are arguing that the government need not be so “fatalistic” in its approach and that in the present scenario, there could be another fall-back option for the carrier, in case the sale fails, albeit one that has been considered before. The fall-back option under discussion is to allow Air India Express, Air India’s wholly-owned low-cost airline subsidiary, to raise money through the market by listing on the bourses — an option GoAir is also exploring — and using part of the proceeds to retire the parent’s debt and to resuscitate it.

“The proceeds could be used to partially pay off AI’s debt, service capital expenditures and provide working capital,” said a former airline CFO. He argues that Air India Express, which makes a profit, albeit a small one, could command a better valuation than GoAir since its margins and profits are higher.

These views are echoed by many in Mumbai’s financial circles. They argue that it may be the “better” option for the government at present, given the recent experience of companies that are listing and raising funds through the stock markets. “I am unable to understand the government’s hesitancy in this regard,” said a former Jet Airways CFO. “Timing is everything” with the markets, he added. He used an analogy to explain his argument. “Assume you are selling your old car but you have a gold necklace lying in your glove compartment. Wouldn’t you sell the gold necklace when prices are at peak (stock listings are rocking) and realise its value, touch up the car a bit and then proceed to sell it?” he said.
 

He and others said that AI Express could raise anywhere between Rs 6,000 crore and Rs 10,000 crore, a hotly disputed matter with the lowest and maximum estimates at wide variance, depending on whom you ask. The airline has been profitable for five years in a row and the profit rose to Rs 412 crore in 2018-19 from Rs 169 crore in 2017-18, according to the airline’s claims. However, according to sources, these numbers have to be taken with a large pinch of salt as many of the costs of Air India Express are borne by the parent.

Another asset that the parent has is Air India Engineering Services Limited, with competent and technically qualified engineers and this, too, could be monetised to raise additional funds, it is argued.

Suggestions to this effect had been made by various quarters in detail and had found resonance with former Air India Chairman and Managing Director Ashwani Lohani but the proposal had not gone anywhere. Many argue that timing wise, this is the apt moment to consider Plan B as the market has proved that it has the appetite. “Unlike GoAir and even SpiceJet, Air India Express’ profits have been higher than the private rivals,” said an official. He said the clamour for the government to look at this option has been rising especially in view of the fact that the response to its expression of interest has been, at best, tepid. Industry circles are not convinced of the validity of the second bidder — the supposed bid by Ajay Singh and Co — and many are convinced that this entire second bid story is a “fabrication”. Several names and rumours are floating around as part of the Singh-led consortium, none of which is confirmed. An industry source said that to the credit of this government and those involved with the sale, leaks have actually been kept to a minimum and the sale was proceeding “demonetisation-style”.

Although many are of the view that Plan B should replace Plan A (sale of the airline), for now this is not even up for discussion, according to sources involved with the sale process. Government sources say that for now they remain fully committed to a sale in its entirety.

“If we start looking at these options, it would derail the process,” said a Ministry of Civil Aviation source on condition of anonymity. There have been “naysayers” to the sale almost all through who surface from time to time and that the government had considered every possible option before selecting the one it did, he said. The change in market conditions and the fact that stock markets are not behaving very rationally does not mean that the government can do an “about-turn” midway. Further, senior government sources said that after all considerations, it was decided that the government could realise the best value if it offers all the attractive and not-so-attractive features in one package. “The government will factor in the value of Air India Express and the engineering company with the prospective buyer,” he explained.

Plan B can be considered if for some reason the eventual sale does not materialise, which still remains a very real possibility. Till then, the disinvestment team wants no distractions that deviate it from the chosen path.