Coronavirus outbreak takes a toll on Air India's disinvestment process

The global outbreak of coronavirus has hit the disinvestment process of state-owned Air India. On Thursday, the government deferred the last date to submit expressions of interest (EoIs) for the national carrier by more than a month to April 30. The current deadline is Match 17.

“The above changes are in view of the requests received from interested bidders and the prevailing situation arising out of COVID-19,”a government notification said.

Sources said the decision was taken after India announced that it is suspending all visas till April 15, virtually sealing off its borders.

“It would have been impossible for foreign bidders to function normally with the closures and suspension. Hence the extension, ”a government official, involved in the process, said. The official added that there is a possibility of further extension if the situation doesn’t improve.

 

Industry executives and investment bankers said there is less chance of the process being successful in the current situation as business houses, including airlines, are looking to conserve cash.

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The process should resume as the global economy settles down after impact of the virus outbreak. No one knows how long it will last and hence will look to save cash rather than indulge in a buy,” said an executive of a global carrier.

Major airline groups globally are under severe stress as the virus has forced the government to impose travel restrictions, leading to airlines cutting routes and even grounding aircraft. 

For instance, the top management of Singapore Airlines has decided to take a paycut and offered voluntary retirement scheme to its staff. German major Lufthansa has been forced to ground almost half of its fleet due to the outbreak.

Cyril Amarchand Mangaldas, the law firm advising Air India’s sale process, said the outbreak can impact mergers and acquisition across the world.

However, the official involved with Air India’s transaction process said the airline’s balance sheet will not materially change for a prospective buyer, as rising future losses and liabilities will be absorbed by the government. 

“A prospective buyer will be insulated from the current impact on the balance sheet,” the person said. He  added that in comparison to major airline groups, Air India’s business is quite small for a person or entity wanting to acquire it.

This is the third attempt by the government to sell Air India. As part of its attempt to sell the carrier, the government changed multiple conditions to sweeten the offer. These include selling 100 per cent stake against the earlier 76 per cent. 

The others changes include reduction of debt – the successful bidder would have to take over only debt worth Rs 23,286.5 crore. The liabilities would be decided depending on the current assets at the time of closing of the transaction.