Amit Shah panel sets the ball rolling on sale of debt-laden Air India

A group of ministers, led by Home Minister Amit Shah, on Thursday set the ball rolling on disinvestment of state-owned Air India. This is the second attempt of the Modi government to sell Air India after a previous attempt failed to generate any interest. 

Officials aware of the deliberations in a meeting of AISAM on Thursday said the agenda was to seek a formal political approval for the re-initiation of the privatisation process. “It was a very productive meeting. We are going to take all the decisions in a defined period of time. The Air India divestment process is underway,” Civil Aviation Minister Hardeep Singh Puri said. 

“The issue of debt and the expression of interest (EoI) will be taken up in the next meeting of AISAM,” the official quoted earlier said. 

The Committee of Secretaries has proposed that the government fully quit the carrier as a 24 per cent holding of the government was one of the major reasons cited by transaction advisor EY on why bidders stayed away. 

The government has agreed to exit the airline completely by selling off 95 per cent stake in the carrier, retaining five per cent for ESOP of permanent employees. 

The government has thoroughly analysed the failed sale process of last year and is making changes in the privatisation process accordingly, the official quoted above said. “EY highlighted that the government holding a 24 per cent stake had scared away many potential suitors. Hence, the decision to sell 95 per cent has been taken,” the official said. 

Officials from Department of Investment and Public Asset Management and the civil aviation ministry are still discussing what portion of Air India’s debt is to be made part of the deal, and hence that was not brought up in the meeting, said a senior government official. 

Air India’s net debt swelled from about Rs 55,000 crore at the end of March 2018 to Rs 58,351.93 crore at the end of March 2019. It includes working capital and aircraft-related debt. 

Around Rs 29,000 crore of debt was transferred to a Special Purpose Vehicle (SPV) Air India Asset Holdings Limited (AIAHL) to clean up the company’s balance sheet. 

AIAHL will raise about Rs 29,000 crore through bond sales in September. 

The rupee-denominated bond issue, and the subsequent repayment of the working capital debt, will nearly halve the interest servicing outgo for Air India from Rs 4,500-5,000 crore a year to about Rs 2,700 crore a year. 

The government will also look to lighten the debt burden for the prospective bidders and is looking to transfer only debt backed by assets as part of the Expression of Interest, which is expected to be made public by the second week of October.