Govt plans Air India debt rejig to woo buyers

New owner may have to absorb only a small part of loans

The government is looking to leverage Air India’s assets to lighten the debt burden of the company to make it attractive to potential buyers. However, the new owner of Air India may need to absorb around Rs 6,000 crore of the working capital debt, internal calculations have shown.

Plans have been firmed up to transfer the company’s working capital debt to a separate shell company, and use the proceeds from sale of profit-making subsidiaries and real estate properties to clear the debt. Air India’s debt at the end of 2016-17 stood at Rs 48,876 crore, of which Rs 31,517 crore (64 per cent) was related to working capital and the remaining 36 per cent accounted for aircraft loans.

Union Finance Minister Arun Jaitley-led group of ministers (GoM) looking at Air India disinvestment has asked the Ministries of Civil Aviation and Finance to prepare a plan for addressing the issue of working capital debt — the biggest concern for any prospective bidder.

But a senior Air India official said the sheer value of Air India’s profit-making subsidiaries would be enough to tackle a major portion of the working capital debt. Also, he pointed out that the debt-to-asset ratio of Air India was low, indicating the level of risk may not be too high. “Air India’s assets valued at current market price are almost at around Rs 25,000 crore. This means most of the debt is sustainable if leveraged at true potential,” the official said. The new owner of Air India, therefore, would need to absorb around Rs 6,000 crore of the working capital.

Since the company is not listed and has not published its annual report for the last two financial years, Business Standard reached out to company officials to get a sense of the valuation. 

According to senior company officials, internal evaluation shows that Air India Charters, which runs the low-cost carrier Air India Express, would command an enterprise valuation of more than Rs 8,000 crore. “Air India Express has consistently remained profitable. Even in 2016-17, it clocked a profit of more than Rs 200 crore, excluding the dividend paid to the parent company,” said a senior Air India official.

Air India’s ground handling firm Air India Air Transport Services (AIATSL) would command a value of around Rs 2,000 crore. “AIATSL is entitled to carry out ground handling services at all airports across India, and any airline will be ready to pay a premium for this,” he said.

In the case of Air India Engineering Service, it has 31 hangars throughout the country for carrying out its business adjoining the airports. The company pegs its value at Rs 3,000 crore. Significant among them is the Nagpur facility, which has an engine workshop valued at around Rs 1,330 crore and Shamshabad facility at Rs 200 crore. Besides, it has Workshop Equipment valued around Rs 200 crore and a large base of skilled engineers.

Air India has a vast bank of real estate properties across India and abroad. During the company’s merger in 2007, its real estate properties were valued at around Rs 7,000 crore.

“The valuation would have multiplied by now. For instance, the building at Nariman Point will be worth around Rs 1,800 crore, considering it is yielding Rs 90-crore annually as rent,” said the official.