HOW AIR INDIA DISINVESTMENT IS UNFOLDING

As of now, the date for submitting expression of interest is May 14

The government is optimistic on the sale of Air India despite some potential bidders withdrawing from the race. Indications given by at least four international carriers — British Airways, Lufthansa, Etihad, and Singapore Airlines — are keeping the government’s disinvestment hopes alive. These foreign carriers are scouting for Indian partners, which meet the net worth conditions. The majority holding needs to be with an Indian player, according to the Air India divestment norms. ANJULI BHARGAVA writes

The government is optimistic on the sale of Air India despite some potential bidders withdrawing from the race. Indications given by at least four international carriers — British Airways, Lufthansa, Etihad and Singapore Airlines (SIA) — are keeping the government’s disinvestment hopes alive.

These foreign carriers are currently scouting for Indian partners which meet the net worth conditions. The majority holding needs to be with an Indian player, according to the Air India divestment norms.

How many players eventually bid will depend more on the appetite of Indian businesses to come in than the problem of finding a foreign airline partner. As of now, the date for submitting expression of interest is May 14.

Of the Indian players, SpiceJet is being seen as a serious contender for partnering an international aviation firm. IndiGo has withdrawn from the race and Jet, too, has said it would not bid on current terms. In fact, sources said Etihad may withdraw its 24 per cent in Jet Airways and that it was scouting for a new partner, not necessarily an airline.

Contrary to recent news reports, sources said the Tatas not being keen was “incorrect” and that there was a very real possibility of the Tatas coming forward. What was less clear was whether it would be through Vistara and SIA or some other partner. A source close to the process said that currently all options are open and everyone is scouting for the right partner.

Indian players are citing the high debt burden and clauses to protect employees as onerous, but official sources argue this is not true. The exact debt had been worked out keeping the company’s assets in mind. The debt is around ~246 billion and is equal to the assets of the company and that was the basis on which the debt left on the books was ascertained.

As of now, Air India’s aircraft are valued at ~210 billion, in addition there is the 100 per cent investment of Air India Express and 50 per cent of AI-SATS — the latter two being estimated at anywhere between ~100 billion and ~120 billion. The current liability, ~88.16 billion, sources explained, is “normal” in the airline business.

As far as the employees clause goes, there is only a one-year lock-in period, post which the government has adopted the same approach as it has for every other disinvestment. After the first year, the new owner is free to offer voluntary retirement to employees. This, they argue, will not amount to as high a number since the average age of Air India employees is just below 50 and a large proportion are in the ages of 54-55 so they need to be paid for only 3-4 years since the retirement age is 58.

“It will not be a massive expense for the new owner to reduce manpower,” said another source, adding that the government was following the normal procedure for dealing with employees of a public sector company that it is looking to disinvest. No special dispensations of any kind were being considered for Air India employees.

A sale is the only way forward, as the daily outgo for the government is currently ~100-150 million on the airline, a massive drain on its resources.

Faced with that, what kind of pricing would make the government happy? EY — the consultant for the exercise — is to come up with a number on valuation. But this is not expected anytime soon as this is the second stage and the process may take 4-5 months.