No takers for AI as auction fails
THE GOVERNMENT HAD PLANNED TO SELL THE STAKE IN THE AIRLINE ON THE CONDITION THAT ITS CONTROL WILL VEST WITH INDIAN ENTITIES AND THE BRAND NAME AIR INDIA IS RETAINED
THE deadline for potential bidders to submit Expressions of Interest (Eois) in buying a strategic stake in Air India lapsed on Thursday with not a single entity putting up its hand. The government has already said there would be no extension of the deadline.
“As informed by the Transaction Adviser, no response has been received for the Expression of Interest (request) floated for the strategic disinvestment of Air India. Further course of action will be decided appropriately,” the ministry of civil aviation said in a Twitter post. The government had planned to sell a controlling stake in the flagship carrier along with the transfer of two-thirds of the loss-making airline’s $7.8 billion debt in the most high-profile asset sale in decades. The debt, and hefty losses accumulated by the airline over the years, could have deterred potential investors. Air India reported a loss of ~5,765 crore loss in 2016-17
Experts said the lack of response to the government invitation for submission of Eois also shows that, globally, financial institutions are not ready to invest large amounts, running into billions of dollars, in the sector.
To revive the politically sensitive sale, the civil aviation ministry, which had initiated the disinvestment process, may now have to revise the bid document in consultation with other airlines to simplify the sale process.
“This should be treated as a
significant failure. The next steps should include a comprehensive restructuring of AI under a special administration which can be followed by 100% divestment with less complex terms,” Kapil Kaul, chief executive officer and director of the consulting firm Centre for Asia Pacific Aviation (CAPA), said. “Dropping the divestment case post this failure will be unfortunate and I expect government to quickly address structural issues and resume the process at the earliest.”
“Cost to the taxpayer will be massive with continued government ownership; even in an election year; we expect strategic clarity from the government of India,” he added.
The government had planned to sell the stake in the airline on the condition that its control will vest with Indian entities and the brand name Air India is retained. It also wanted to sell 100% of its low-cost international carrier Air India Express Ltd and a 50% stake in Air India SATS Airport Services Pvt. Ltd, an airport ground-handling joint venture.
Days after the government invited the Eois, India’s two main airlines-- Indigo, run by Interglobe
Aviation Ltd and Jet Airways India Ltd -- said that they wouldn’t participate in the process.
“From day one, Indigo has expressed its interest primarily in the acquisition of Air India’s international operations and Air India Express. However, that option is not available under the government’s current divestiture plans for Air India,” Aditya Ghosh, the then president if the airline, said in April.
“We do not believe that we have the capability to take on the task of acquiring and successfully turning around all of Air India’s airline operations,” Ghosh said.
Experts said any company buying the airline would need to invest as much as $10 billion and the time is not right to raise so much money.
“This doesn’t mean that there is something wrong with Air India; it is just that this is not the right time considering the global financial situation, as the company has to raise funds. For a big venture like Air India, it takes time and government needs to be patient. This is not a small transaction as there are land, offices and many items involved in this big deal. AI is revenue worthy and should be given to the right investor,” said Mark Martin, founder and CEO of Dubai-based Martin Consulting.
The government had extended the deadline for submission of ‘Expression of Interest’ (EOI) till May 31, 2018 from May 14. Civil Aviation Secretary R N Choubey has hinted that government may not sell Air India if it doesn’t get the right price.