A group of ministers (GoM) on Tuesday finalised the sale of the entire government stake in state-owned Air India (AI). The alternative mechanism for AI, led by Home Minister Amit Shah, approved the Expression of Interest (EoI) for prospective suitors in the airline. The public announcement through newspaper advertisements will be done within two weeks, officials involved in the sale process said.
The GoM also gave in-principle approval to hive off around Rs 20,000 crore of additional debt and liabilities to a special purpose vehicle, to make it more attractive to prospective buyers.
“The committee has approved the Expression of Interest, share purchase agreement, and restructuring of further debt today. The EoI will be open to bidders and public shortly,” a senior government official said.
This is the third time the government is trying to privatise AI. The Centre had in 2017 tried and failed to sell the carrier as no bidders responded to the EoI. According to the audited accounts of the carrier, at the end of FY19, it had Rs 58,351 crore of debt. A successful sale will help the government save money for welfare schemes, from its already stretched revenue. Till FY19, it had infused Rs 30,000 crore in the airline but failed to revive its fortunes.
People in the know said a proposal to transfer additional debt and liabilities of around Rs 10,000 crore each would be absorbed by the government, to lighten the burden for prospective buyers. “An in-principle approval has been given to hive off a portion of additional debt and some liabilities like dues to oil companies and airport operators as well as pending salary dues and benefits to permanent and retired employees…,” a second official said.
As of FY19, Air India had assets worth Rs 28,000 crore and liabilities estimated at Rs 22,000 crore, primarily dues to vendors such as airports and oil companies and short-term working capital loans.
Out of a total debt of Rs 58,000 crore, the government has already transferred Rs 29,500 crore to the special purpose vehicle Air India Asset Holding. Now, another Rs 10,000 crore of debt hive off has been approved, leaving the bidder with Rs 18,500 crore of debt.
Sources said IndiGo, Vistara, AirAsia India, major global airlines like International Airlines Group (which owns British Airways and Aer Lingus), as well as 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, has held five roadshows in Mumbai, Singapore, and London to drum up investor interest.
A private owner will not enjoy the comfort of sovereign guarantee with banks, which the airline currently has because of government ownership, he pointed out. “Banks will be more cautious when allowing a private company to carry that much debt,” the executive said, pointing out that with Jet Airways belly up, there’s a void in connecting the country with long-haul destinations.
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. This would help a potential suitor like Tata Sons, which has two airline companies — Vistara and Air Asia India — to merge Air India with the existing airline.