Air India stake sale: EoI for bidders to be issued in first week of January

Significant interest among large companies to acquire the airline

Air India disinvestment is likely to be delayed as the expression of interest (EoI) for bidders will be issued in the first week of January, a source in the know pointed out. The earlier plan was to issue the EoI during the current calendar, but the government is taking time to prepare an attractive deal  for prospective buyers. The EoI is expected to be in place by the time potential investors return from their Christmas vacation.   

Interactions held with transaction advisor EY have shown there’s an interest among major business houses in the deal, according to another source.

The government has set a target of Rs 1.05 trillion from the disinvestment proceeds for FY20 and the strategic sale of Air India is a critical component in that. If the EoI is issued in January, the sale process is unlikely to be completed during this fiscal year.

“The EoI will be floated immediately after the holidays. Some more time is required to listen to investors and incorporate their views to make the transaction successful. There is no point floating the EoI during Christmas as most international investors will be on holiday,” said a person involved in the process.

Many big corporate houses see opportunity in acquiring Air India as there’s a void in connecting the country with long-haul destinations, the person quoted earlier said.  “Interactions with prospective bidders have shown they recognise that there’s white space available after the exit of Jet Airways,” he said. 

“Even an existing airline seeking to expand its international footprint can leapfrog the process with Air India,’’ he added. The number of wide-body aircraft has shrunk from 63 out of a total aircraft strength of 614 in 2018 to 43 now — a development, which experts say, is out of sync with the global norm. Internationally, wide-bodied planes make up 20 per cent of an airline’s fleet. The government is holding road shows in several international destinations to drum up interest among investors. Officials from the Civil Aviation Ministry and the Department of Investment and Public Asset Management (Dipam) will later this month visit Singapore and then London. “The significant difference between the current process and the previous one is that the government is willing to listen to investor concerns and sort these out,’’ the person close to the developments said. ‘’If you see last time’s response to bidders’ queries, most of those were a standard reply. This time, we have pondered over those queries, also got new feedback from investors which will be incorporated,” he said. The idea now is to give complete clarity to bidders on the structure of the company, workforce and aircraft in the EoI stage itself. Among the many steps it’s taking, the government has decided to fully exit the airline instead of holding a residual stake. It is also working to reduce the debt burden by hiving off more debt to a Special Purpose Vehicle (SPV) for the purpose.

The government has already transferred Rs 29,500 crore of debt to the SPV — Air India Asset Holding (AIAHL). “The process is on to transfer more debt and clean up the balance sheet to make it lucrative,” an official said. Following feedback from potential suitors, the government is also relaxing a rule which makes it mandatory for the new owner to lock in shareholding for at least three years. The new owner would also allow merger or reverse merger of Air India with any existing business of the buyer- a change from last year’s norms where it was made mandatory for a bidder to operate Air India at arm’s length from its other business till the time there was government shareholding in the company.

The revised rule would help a potential suitor like the Tatas, which operate two airlines Vistara and Air Asia India, to merge Air India with the existing business.