The Centre will likely make the ailing Air India (AI) virtually debt-free by taking over an additional Rs 20,000 crore from its books before offering it afresh to bidders by the end of this month.
The government had taken over Rs 29,464-crore of AI debt earlier this financial year through a special purpose vehicle (SPV). AI's assets, largely its fleet of aircraft, are estimated to be about Rs 20,000 crore, equivalent to the residual debt to be taken over by the prospective buyer, along with the entire government stake in the airline.
As on March 31, 2019, AI's debt and other liabilities had stood close to Rs 70,000 crore.
With the debt overhang over, the much-anticipated AI privatisation might materialise this year and contribute a substantial amount to the Centre's disinvestment receipts. The premium bilateral rights owned by the national carrier are what the prospective buyer will have to really pay for.
AI's assets include a fleet of 128 aircraft and its valuable bilateral flying rights, landing rights and parking slots at airports across the world. Air India owns 70 planes, including wide-body Boeing 787-800 Dreamliners, and the remaining planes are on lease.
It is expected that a foreign airline may tie-up with an Indian airline/investor to bid for the national carrier. The current FDI rules allow foreign airlines to buy up to 49% stake in domestic carriers.
AI is surviving on taxpayer bailouts after losing money continuously since FY08 after the merger of the erstwhile Indian Airlines with Air India.
While efforts have been made to revive the airline in the past, AI has not reported a profit in at least a decade; in FY16 it posted an operating profit of Rs 105 crore and reduced its net loss to Rs 3,837 crore compared with Rs 5,859 crore in FY15 and a whopping Rs 7,635-crore loss in FY19.
Retaining the airline in its fold is a much more expensive proposition for the government than transferring the ownership. To enable the sale, the government would require to infuse amounts much higher than the Rs 50,000 crore proposed under a revival plan for AI, which entails it to continue as state-run entity. The Centre has already infused about Rs 30,000 crore in the airline over the past seven years.
In June last year, the government called off the proposed sale of 76% stake in AI after no buyer showed interest. Probable reasons as analysed by the transaction adviser EY for non-receipt of bids last year included the government's decision to retain 24% stake and corresponding rights, high amount of allocated debt, changes in macro environment, individuals not being allowed to bid, profitability track record and bidders not being able to form a consortium within given time period.
Most of these constraints will be removed this time and actual "sale and purchase agreement (SPA)" will be shared with prospective bidders at the EoI (expression of interest) stage itself to help them take long-term view of the various liabilities and accordingly plan their funding for the deal.
Grounding of private full service airline Jet Airways, which had 14% domestic market share at end-2018, has given an opportunity to the government to exit the national carrier to save taxpayers’ money. The new owner of AI could capitalise on AI’s brand and profitable routes to increase its market share further from 12.7%.