Airlines, private equity funds, HNIs warm up to Air India divestment

Indian and foreign airlines, private equity funds, and high net worth individuals have evinced interest in acquiring Air India, thereby giving a fillip to the government’s third attempt to successfully sell the carrier.

Sources aware of the development said India’s largest airline IndiGo, Vistara and AirAsia India (owned by Tata Sons), major global airlines like International Airlines Group (which owns British Airways and Aer Lingus), and sovereign and private global funds such as Temasek, KKR, and Warburg Pincus have attended roadshows organised by EY — an advisor to the process. EY, along with the Department of Investment and Public Asset Management (DIPAM), has held five roadshows in Mumbai, Singapore, and London to drum up investor interest. “We are on track to continue with the disinvestment of Air India through a process governed by rules. We have got a positive suggestions and feedback on the sale process,” DIPAM Secretary Tuhin Kanta Pandey said. 

While refusing to disclose names of any prospective investor, Pandey said privatising the airline will turn the company stronger, benefiting India’s aviation ecosystem. “Air India becoming stronger will help India’s aviation. This is important in the country’s quest to become a $5-trillion economy by 2024-25,” said Pandey.

A Rs 30,000-crore bailout by the previous UPA government had been unable to reverse the fortunes of the carrier. “There are multiple sectors and firms where the government has to invest its resources. A strong private player operating the airline is a positive,” said Pandey.

Minister of State for Civil Aviation Hardeep Singh Puri had said there is a chance of the airline shutting down if it is not privatised. Queries from interested investors during the roadshows were primarily centred around India’s aviation rules, Air India’s debt repayment cycle, terms and conditions of leased and owned aircraft of the company, and financial opportunity from the government’s regional connectivity scheme (UDAN). “The investors who attended the roadshows were genuinely interested people with deep knowledge. Some of their suggestions will help to make the sale process lucrative,” the official said.

For instance, a government official confirmed the Centre was planning to hive off additional debt from Air India’s books, besides the Rs 29,500-crore already hived off into Air India Assets Holding — a subsidiary created to hive off debt and subsidiaries, and non-core assets of the company. Up to Rs 15,000 crore of more debt is likely to be hived off. 

 

The total debt of Air India as on March 31, 2019, is Rs 58,282.92 crore. Dbt amounting to Rs 29,464 crore has been hived off into a special purpose vehicle, as decided in the meeting held on September 7, 2018, under the chairpersonship of then finance minister.

During the last attempt, potential bidders had expressed their inability to take over Rs 33,992 crore of debt, which resulted in zero participation in the expression of interest (EoI).

“What is necessary is to give investors a fair chance to turn around the company. Air India over the years has accumulated a lot of short-term debt, which was raised for working capital and pay for past losses, turning its networth into negative. Naturally any investor will be cagey to take up debt which cannot be paid through normal cash flow of operations,” an executive of a company, who attended the roadshow, said.

A private owner will not enjoy the comfort of sovereign guarantee with banks which the airline currently has due to government ownership, he pointed out. “Banks will be more cautious when allowing a private firm to carry that much of debt,” the executive said, pointing out with Jet Airways belly up, there’s a void in connecting the country with long-haul destinations. “Even an existing airline seeking to expand its global footprint can leapfrog the process with Air India,” he said. The government will bring out the EoI for Air India, its subsidiary Air India Express by December, but will not rush to complete the process this financial year. While the Centre had earlier intended to publish the EoI by October, it is now bringing out a draft shareholders’ deal, which has delayed the process.

“What is important is that the sale process should be successful. With the shareholder agreement being given at the first stage, it will give a lot of certainty to investors. Last year, we had no answers to a lot of investors’ queries. This had put off a lot of prospective bids. This time, they will be clear about the investment,” a senior official said.