Bids invited again for Air India sale, govt aims to seal deal by March-end

New Delhi: The government invited bids for a 100% stake in Air India, aiming to finalise a sale of the loss making national carrier by the end of March, after having sweetened the deal by absorbing about two thirds of its debt. Control will be retained by a domestic entity as overseas investors can only acquire as much as 49% under the rules. Apart from Air India, also on sale are Air India Express and a 50% stake in ground-handling company Air India Singapore Airport Terminal Services, according to the notification seeking expressions of interest issued on Monday. Air India Express is a low-cost subsidiary that flies overseas.

The sale won’t include Alliance Air, land and buildings or any of the art that the carrier has acquired over the decades. Alliance Air as well as the ground-handling and engineering subsidiaries will be sold separately. This is the second time the government is trying to sell the carrier after having failed to do so in 2018. At that time, the government had offered a 76% stake.

The last date for submission of bids is March 17 and the government intends to decide on the new bidder by March-end. AI’s debt is being slashed to Rs 23,286 crore from Rs 62,000 crore. The remaining liabilities will be adjusted to ensure that there are assets against them. Of the 100%, about 3% will be offered to employees as stock options by the new owners.

“There will be no extra privilege provided to any foreign airline bidding for Air India and the bids have to be under the existing FDI (foreign direct investment) rules and the SOEC (Substantial Ownership and Effective Control) norms,” said Department of Investment and Public Asset Management (DIPAM) secretary Tuhin Kanta Pandey. Under these norms, overseas ownership can’t exceed 49%. Also, an airline’s chairman and two-thirds of its board have to be Indian. Its base of operations has to be in India.

ET had reported first that no SOEC norms will be relaxed for Air India. Aviation minister Hardeep Singh Puri said there’s value to be had in Air India.

“Air India and Air India Express are a great asset and the average age of aircraft in Air India, Air India Express is eight years,” he said. “Any private investor can turn it around by bringing financial efficiencies. Government has limited financial resources and the private sector can bring required capital. All land, building assets including paintings (are) not part of the transaction.” The debt left with the company has been pegged to written-down value of the 82 planes that Air India owns.

“Air India is virtually being offered without any debt, as new owners can do a sale and lease back on these aircraft and recover the amount of debt, which has been frozen at this level,” said a source involved with the transaction process. The government has already reduced debt liabilities by Rs 29,400 crore from Rs 62,000 crore and will further reduce over Rs 9,300 crore of this. ET had first reported that the government would bring the debt down to about Rs 20,000 crore.

With this reduction, the government will take on debt and liabilities amounting to Rs 56,334 crore in Air India Asset Holdings Ltd (AIAHL), a special purpose vehicle (SPV) created to house the carrier’s debt and assets. Of the total liabilities, AIAHL has assets estimated at Rs 17,000 crore and the rest will be funded by the government.

“AIAHL in the past has raised money through bonds to fund these liabilities,” Pandey said. “As and when requirements arise, provisions will be made by the government to fund the debt.” DIPAM is the nodal ministry for the divestment of central PSUs. EY is the transaction advisor for the company. The government didn’t say what liabilities would remain with the company. “The data on these liabilities will be available with the data room,” Puri said. Interested parties can gain access to the data room for a fee of Rs 1 crore.

The government has reduced the net worth criteria for the bidder from Rs 5,000 crore stipulated in 2018 to Rs 3,500 crore. As it did last time, the government has mandated that the new owners will continue to use the Air India brand name and cannot change it after the purchase. Air India chairman and managing director Ashwani Lohani said the airline does not have excess staff. It has a total employee strength of 16,077 and about 9,617 of them are permanent, the rest are on contract or temporary staff. “Air India does not have excessive number of employees. There is no pension liability and the liabilities basically pertain to entitlements,” Lohani said.

A source involved with the transaction process said that the airline’s liability on account of gratuity and medical benefits is about Rs 180 crore. “The airline’s terminal benefit liability is in range and the new owners will fund the liability from revenues. Air India has been funding these liabilities through its revenues,” he said.