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Govt sweetens Air India sale offer, to exit 100%

FE Bureau

After a failed attempt in 2018, the government on Monday invited bids for privatising state-owned carrier Air India, a second effort in less than two years for stake sale in the debt-laden airline. Learning its lesson from the 2018 failure, the preliminary information memorandum states that 100% stake will be offloaded unlike 76% offered in the previous attempt. However, the new owners would be required to continue to use the "Air India" brand name and this cannot be changed.

The government has also retained a provision that substantial ownership and effective control of the airline must remain with an Indian entity.

Besides AI, the government is also offloading its 100% stake in its low-cost subsidiary, Air India Express (AIXL), and 50% of AISATS, which provides cargo and ground handling services at major Indian airports. The last date for submission of EoI is March 17, while qualified bidders would be intimated by March 31.

Apart from reducing the debt of the loss-making airline, the government has made a number of changes in the eligibility criteria for prospective bidders in its attempt to sweeten the deal. For instance, the debt of AI and its low-cost subsidiary has been reduced to around Rs 23,286 crore from Rs 60,000 crore. This way the debt left with the company are only on account of aircraft purchase, which are against government guarantees. However, once the sale process to a private entity is over, these guarantees would go.

In addition to the debt of Rs 60,000 crore, the airline and its subsidiary have liabilities worth Rs 25,000 crore. Of this, the prospective buyer would have to take over only Rs 9,700 crore backed by assets. This way, the buyer would have to take over debt and liabilities worth Rs 32,986 crore as against around Rs 85,000 crore.

This means that the prospective buyer would now have to take over only 39% of the total debt and liabilities, unlike 61% in the 2018 bid document.

The government will also take other liabilities, if any, arising on account of income tax, customs duty and service tax.
With regard to eligibility criteria, to make the disinvestment process attractive, a host of norms have been relaxed compared to the ones stipulated in 2018.

In the new norms, the net worth for potential bidders has been fixed at Rs 3,500 crore and minimum stake for an individual consortium partner has been lowered to 10%. In 2018, the net worth amount and minimum consortium partner limit were set at Rs 5,000 crore and 26%, respectively.

An entity can put in bid on the strength of its parent, which was not there before. A consortium can participate in the disinvestment process, provided each partner has at least 10% stake as well as 10% of the Rs 3,500 crore net worth requirement.

The lead member of a consortium should have at least 26% stake. Individuals are allowed to bid as part of consortium. Also, a domestic carrier without net worth can have up to 51% stake while the partner should be able to comply with the Rs 3,500 crore net worth criteria.

Analysts see the latest offer as bold and attractive and expect a good response, according to CAPA aviation consultancy India head Kapil Kaul. "The entire debt excluding aircraft is taken out and this to me signals a very determined effort to exit Air India to allow tax payers funds to be utilised for social agenda of the government," Kaul said. "This may be the single biggest write off by the government" he added.

Civil aviation minister Hardeep Singh Puri said that the government was open to suggestions and altering some provisions of the terms and conditions if they helped in finding a buyer. "We have gone into this exercise, months of planning and preparation have gone into it and this is not final. It is an interactive process," Puri told reporters.

The winning bidder would win control of Air India’s 4,400 domestic and 1,800 international landing and parking slots at domestic airports, as well as 900 lucrative slots at airports overseas.

As on November 1, AI and AIXL’s combined aircraft fleet strength at 146 comprises 78 Airbus and 68 Boeing aircraft. The staff strength of AI is 9,426, 36% of which are retiring in the next five years.