Govt mulls dropping debt condition to sweeten Air India sale

Debt baggage can deter potential buyers, sources say as top govt officials vet plans under the new proposal

Air India
Air India hasn’t made money since 2007 and has been hurt by the pandemic | Photo: iStock

The government is reportedly proposing to drop a condition that the winning bidder for Air India Ltd will have to take on $3.3 billion of aircraft debt, Bloomberg reported.

Civil aviation minister Hardeep Singh Puri had said in July the disinvestment of Air India was the only option available, as like other airlines, the public-sector air carrier has already been under strain since pre-Covid times and that situation has exacerbated as the pandemic continues.

The advice to the government to drop the condition centres on concerns that debt baggage will deter buyers, Bloomberg said quoting unidentified sources.

Top government officials have vetted the plan, and under the new proposition, potential buyers will be allowed to bid on the enterprise value and not on the entity value, reports said.

Air India hasn’t made money since 2007, and has been hurt by the pandemic, forcing the government to keep extending a deadline to bid. The offer, announced in January, was sweetened to pass on only the debt related to plane purchases to the new owner. The airline had $8.4 billion in total debt at the end of March, 2019 and posted a loss of $1.2 billion that year – the highest ever.

In July, Puri had said in a press conference that anyone who is familiar with Air India, including the people who work there, realize that besides privatization, we are left with no other option. “This is for the simple reason that airlines the world over have been under strain pre-Covid and the pandemic has introduced a new element. The Air India CMD is conducting detailed discussions with all sections of the company, like pilots and engineers,” said Puri.

Related news: ‘Air India is a first-class asset’: Aviation Minister on debt-ridden airline

The airline has some lucrative assets which include prized slots at London’s choked Heathrow airport, a fleet of more than 100 planes and thousands of trained pilots and crew. The airline will have to shut down if it can’t find a buyer, Aviation Minister Hardeep Singh Puri told the parliament last year. The new proposal sweetens the deal.

At least two previous attempts to sell the airline — once about two decades ago and another in 2018 — have flopped. In 2001, Singapore Airlines Ltd. dropped its bid for a stake in Air India, citing political opposition as one of the reasons. The Southeast Asian carrier was seeking a 40% stake with India’s Tata Group.

Potential buyers this time have requested the government to extend the deadline to submit initial bids due to the coronavirus pandemic, the government said last month. Tata SIA Airlines Ltd., a joint venture between Singapore Airlines and Tata Group which operates under the brand Vistara, is evaluating a possible bid, its chairman Chairman Bhaskar Bhat said earlier this year.

Related news: Corona may fly Air India divestment through an air pocket

IndiGo, India’s biggest airline that’s operated by InterGlobe Aviation Ltd., showed interest in Air India’s international operations and low-cost carrier Air India Express in a previous offer to sale, but it pulled out saying the no-frills airline is unable to buy and turn around Air India’s operations in their entirety.

Air India chairman and MD Rajiv Bansal has said the company is working on increasing revenues. “At the same time we are trying to contain costs, through three steps. We can reduce our debt, lease rentals, staff costs and operating costs. We are negotiating with lessors to reduce aircraft rentals. We have made some initial headway and hope that even the current global situation, we will be able to negotiate an improved deal,” he said.

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