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Air India sale: Govt to sell 100% stake in national carrier with 17 March deadline for EoI submissions; all eyes on suitors

FP Staff

The government said on Monday it plans to sell its entire stake in Air India, in a revised push to sell its national carrier after an initial attempt to sell a majority stake in the airline failed to draw a single bid in 2018.

A document inviting expressions of interest in Air India, released on Monday, said the governent would sell a 100 percent stake in the carrier, which operates both domestic and international routes. The document set 17 March as the deadline for submissions of initial expressions of interest and said any bidder would have to agree to assume roughly $3.26 billion in debt, along with other liabilities, according to a Reuters report.

As the government is set to invite preliminary bids from potential investors for selling 100 percent stake in Air India on Monday, all eyes are on the portion of airline debt to be taken off its books and qualification for suitors. Prospective buyers would have to respond to the Expression of Interest (EoI) by 17 March 2020, according to an IANS report. Industry sources said that some of the potential bidders could be Tata Group, Hindujas, IndiGo, SpiceJet and a few private equity firms.

Some of the foreign airlines could tie-up with local players to place their joint bids.

The government said that substantial ownership and effective control of Air India would have to remain vested with an Indian entity following the sale, limiting the scope of any foreign bidders interested in the asset.

In 2018, the government had tried to sell a 76 percent stake in Air India and offload about $5.1 billion of its debt, terms that potential buyers at the time viewed as too onerous.

Air India, known for its Maharaja mascot, has some of India's most lucrative international and domestic landing and parking slots that are key for airlines.

While the overall economic environment remains subdued, industry analysts said that there would be significant investor interest for Air India given its wide domestic and international network, traffic rights, slots at key foreign airports such as London and Dubai, technical manpower and large fleet.

"Besides, the government is ready to go the extra mile to sell off the airline. The government has hinted that it will agree to the demands of potential buyers as it is determined to completely exit the airline business," said Rajan Mehra, CEO of Club One Air and former India head of Qatar Airways.

Air India is currently bleeding heavily with average daily loss pegged at Rs 20-25 crore. The Narendra Modi government is not keen to give any further financial support to the airline and has announced to shut it down if the second disinvestment bid fails.

As per official data, Air India had operating revenue of Rs 25,509 crore in FY19. As its operating expense during the fiscal was Rs 30,194 crore, the airline had an operating loss of Rs 4,685 crore. On a net basis, its loss was a record high at Rs 8,556 crore (provisional) in the previous financial year.

Air India has a fleet of 125 aircraft and its domestic market share is 11.9 per cent as on December, 2019.

Learning from its previous experience, the government has decided to sell its entire 100 percent stake in the airline. It is also learnt to have sweetened the deal by removing a large part of its Rs 60,000 crore debt and clearing other liabilities.

"We expect significant interest as the Government of India (GoI) has structured a very attractive offer," said Kapil Kaul, CEO (South Asia) of Sydney-based Centre for Asia Pacific Aviation (CAPA).

While many industry veterans are bullish on investor interest for Air India, some of the sector experts said that it may not be easy given the current business environment globally.

"The global growth forecast has been downgraded. India has seen its GDP growing at slowest pace in the last over six years. The fuel and foreign exchange situations are not great either," said an expert wishing not to be named.

He, however, added that it is a do-or-die situation for the government as it can no longer infuse money into an airline which is losing Rs 25 crore a day.

An industry insider said that IndiGo is one of the strong contenders for Air India but given the fighting between its co-founders it will be difficult to get shareholders' approval for placing the bid.

"Initial bids can be placed but before signing binding agreement shareholders' approval would be required," said the insider.

-- With inputs from agencies

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