Business Standard

Tatas offer to buy AI; Ajay Singh in fray too

- ANEESH PHADNIS Mumbai, 15 September

The Tata group and Spicejet promoter Ajay Singh have submitted financial bids for acquiring Air India as the disinvestm­ent process of the debt-ridden national carrier entered its final stage. This comes three years after a failed attempt by the government to sell Air India.

“We have received financial bids in sealed covers. The bids will be opened after the reserve price is fixed independen­tly and security clearance of bidders is obtained,” said Tuhin Kanta Pandey, secretary, Department of Investment and Public Asset Management (DIPAM). The government hopes to conclude the disinvestm­ent of Air India by the end of the year.

The Tata group has confirmed that it has put in its bid. Ajay Singh has participat­ed in the bid, according to people in the know.

While the Tata group has submitted its offer through a wholly-owned separate subsidiary company, Singh is believed to have partnered with other entities for the bid. September 15 was the last day for submission of financial bids.

After a failed attempt in 2018, the government invited expression of interest last January to sell a 100 per cent stake in Air India and Air India Express and 50 per cent stake in ground handling arm AISATS.

Initial bids were received last December and a draft share purchase agreement was issued in March.

The suitors have shared their comments and there have been discussion­s with the government to fine-tune the draft agreement.

Air India and Air India Express together have over 141 aircraft and are the largest operators on internatio­nal routes from India. However, the airline has been saddled with high debt and accumulate­d losses of over ₹70,000 crore, impacting its performanc­e. In the last fiscal year, its estimated loss was around ₹9,779 crore.

To sweeten the sale offer, the government made changes in bid conditions last October. Instead of a prefixed debt level, bidders were allowed to quote enterprise value.

Further sops have come in form of the recent clarificat­ion in the Income Tax Act allowing the airline’s new owners to set off profit against the past year losses. The government has also agreed to employees’ demands related to provident fund and medical benefits in a move to prevent a possible confrontat­ion.

Air India is potentiall­y a strategic opportunit­y but with high structural complexity. Investment in Air India will be a bet on India’s long term aviation potential – which is significan­t – keeping in mind the massive cost of restructur­ing and the continuous flow of funding that would be required for a turnaround. The government should not expect anything significan­t from Air India’s privatisat­ion and may be required to make the offer viable given the very poor financial and operationa­l condition of Air India,” said Kapil Kaul, South Asia CEO of consultanc­y CAPA.

Some of the cost related challenges pertain to high lease rentals for Air India’s 787 aircraft and engine overhaul costs related to narrow body aircraft, a source said.

Bidders will have valued Air India based on its intangible assets such as its airport slots, traffic rights and its brand value. We must bear in mind aviation has come under stress due to Covid-19 pandemic. There are a lot of aircraft capacity lying globally idle and this could depress the valuation multiple being offered by the bidders,” said an aviation analyst.

EY is transactio­n advisor for Air India disinvestm­ent.

The government is targeting ₹1.75 trillion from disinvestm­ent in the current fiscal. This includes stake sales in Life Insurance Corporatio­n, Bharat Petroleum Corporatio­n, IDBI Bank, Shipping Corporatio­n of India and Container Corporatio­n, among others.

 ??  ?? Air India and Air India Express together have over 141 aircraft and are the largest operators on internatio­nal routes from India
Air India and Air India Express together have over 141 aircraft and are the largest operators on internatio­nal routes from India

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