The Indian government has granted “in-principle” approval for the disinvestment of debt-ridden Air India through transfer of management control and sale of its 100 percent equity share capital along with its two profit-making subsidiaries, Air India Express and Air India SATS Airport Services, in which it holds a 50 percent share with ground handling and cargo handling service company SATS of Singapore.
The declaration marks the second solicitation of an expression of interest (EOI) in the past two years. The first received no response. Submissions are due March 17 and the government expects to notify bidders of their qualification by March 31. Ernst & Young India has agreed to serve as a transaction advisor.
“This EOI has come at a wrong time for some and right for others,” commented Santosh Hiredesai, an analyst with Mumbai-based SBICap Securities. “The exit of Jet Airways opened up slots and bilaterals for Indian domestic carriers with ambitions to expand to international markets that picked them up. However, those starting afresh with a new airline will have a direct advantage as they will get Air India slots. However, the question is who has the money to absorb the massive debt of the national carrier. Also, the mandatory absorption of its staff by the new entity remains unanswered.”
The airlines control a 146-aircraft fleet and a network connecting 45 international and 57 domestic destinations. Every week, Air India uses 4,486 domestic and 2,738 international slots, including 72 in the U.S. and 74 in the UK, two large markets for Indian travelers. The state-owned airline offers 75 additional destinations through its codeshare partners. It also employs a vast pool of 1,900 pilots and 4,000 cabin crew out of an employee base of more than 21,000; the EOI assures that 36 percent—or 9,000—will retire in the next five years.
The airline, however, has accumulated debt of more than $9 billion. “Air India’s financial position can be described as very fragile,” said Indian minister for civil aviation Hardeep Singh Puri. The EOI calls for a debt freeze at $2.5 billion, which approximately equates to the written-down value of the combined assets of Air India and Air India Express. “Any private investor can turn it around and bring operational and financial efficiency,” added Puri. “We hope Air India remains a vibrant company and continues to fly forever. We have learned valuable lessons from past attempts.”
The sale of the carrier likely will not happen without opposition. Member of Parliament Subramanium Swamy has threatened to go the court against the government’s decision to, in his words, “sell the family silver.”