As the deadline to place the expression of interest for the Air India stake sale ended on Monday, it is learnt that the government has received “multiple expressions of interest" for the debt-laden carrier.
“Multiple expressions of interest have been received for strategic disinvestment of Air India. The transaction will now move to the second stage,” Secretary, Department of Investment and Public Asset Management, Tuhin Kanta Pandey, said in a tweet.
Here's all you need to know about the story so far:
Second attempt by the Airline
This is the government’s second attempt at disinvesting its stake in Air India. In the past two years the government has been gradually sweetening the conditions for potential suitors owing to a lackluster response. The earlier attempt in 2018 ended badly, after not a single bid was received for the airline.
The government had earlier put up a 76% stake for sale along with a portion of its debt. This time, it plans to divest 100% of its equity share capital in Air India Limited, which includes Air India’s shareholding interest of 100% in Air India Express, and 50% in Air India SATS Airport Services.
Challenges going ahead?
Air India had current liabilities and provisions, including short-term loans and trade payables of Rs 70,686.6 crore and a net debt of Rs 58,255 crore at the end of 2018-19. Thereafter, the government has transferred Rs 29,464 crore of this debt from Air India to a government-owned special purpose vehicle, Air India Assets Holding Company Ltd.
The airline's losses continued to mount in part due to a large workforce, but also due to government obligations that require it to fly a number of loss-making routes. For fiscal 2018-19, Air India’s net loss is provisionally estimated at Rs. 8,556.35 crore.
Apart from the debt and enormous losses, the new owner will also have to deal with legacy issues including various contracts and one of the major challenges will remain tackling the highly unionised workforce.
With over 9000 employees as on 2019, Air India has outstanding liability towards staff voluntary retirement scheme (VRS). The onus will be on the new owner to pay and renew contracts and leases. It will mean huge investment, besides the amount to be paid for the deal to acquire 100% stake in the airline.
According to the media reports, Tata Group has submitted an official expression of interest for the airline.
The other confirmed bid has been jointly placed by a consortium of Air India employees and Interups, the chairman of the investment
The bid proposes to give 51% stake to the Air India employee association, which includes 219 staffers, including some board members, and 49% stake to Interups Inc, which will act as the financial partner.
According to an IANS report, a Delhi-based company, Kanti Commercials is leading a consortium along with Fragment Nivesh and Enormous Nivesh who put an expression of interest for Air India.
The way forward
During this attempt, the most significant change made by the government in terms of bidding was that it allowed potential investors to bid on the basis of enterprise value, effectively allowing the bidders to determine the debt level that they would want to take on.
The bidders will be asked to place offers for the entire company, 85% of which would be considered to go towards debt repayment and the balance would accrue to the government.
Going ahead, the entities that have submitted the expressions of interest, will need to submit physical bids in 15 days time, and the qualified interested bidders will be intimated on January 5, 2021.