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Air India Disinvestment Plans Hit Hard, With No Takers

Picture : Representational image
Picture : Representational image

The central government’s plan to divest a majority stake in the national passenger carrier Air India seems to have run into trouble, as no bids were received for the cash-strapped airline.

According to the Ministry of Civil Aviation, “no response” was received till 5 p.m. on Thursday which was the extended submission deadline for the ‘Expression of Interest’ (EOI) bids under Air India’s divestment process.

“As informed by the Transaction Adviser, no response has been received for the Expression of Interest floated for the strategic disinvestment of Air India,” the ministry said in a tweet.

“Further course of action will be decided appropriately.”

Subsequent to the process not being able to attract any bids, sector specialists blamed the deal’s structure especially the massive debt burden that the new owners were supposed to have harboured after the airline’s divestment.

PricewaterhouseCoopers’ Partner, Leader – Aerospace & Defence Dhiraj Mathur said: “This was not entirely unexpected. There were issues with the structure of the deal like the massive debt liability of Rs 33,000 crore, new investments and the government’s plans to retain a 24 per cent stake in the airline. Besides, there were certain areas which need more clarification like the flexibility to manage employees.”

“Even the timing of the process which coincides with the key assembly and the 2019 general elections would have been another dampener.”

CAPA South Asia’s CEO and Director Kapil Kaul said: “Next steps should include a comprehensive restructuring of AI under a special administration which can be followed by 100 per cent divestment with less complex terms.”

“Dropping the divestment case post this failure will be unfortunate. Expect GOI to quickly address structural issues and resume the process at the earliest.”

Interestingly, the government on May 1 had released a detailed document on clarifications sought by interested bidders regarding the divestment process.

There were several queries raised on the government’s plans to retain 24 per cent stake in the divested entity, provision of ESOPs (employee stock ownership plan) and on the total debt and liabilities which are expected to remain with AI.

The clarification document outlined that net current liabilities as Rs 88,160 million (Rs 8,816 crore) and “these will remain with AI and AIXL (Air India Express) as these have been incurred in the course of business.”

“After deducting INR 88,160 mn from INR 333,920 mn, the remaining figure of INR 245,760 mn is the debt and liability quantum that will remain with AI and AIXL.”

As per the old process timelines, the submission deadline for the EOI bids was earlier extended to May 31 and consequently, the date for the “intimation to the Qualified Interested Bidders” — QIB — which was supposed to have been the next stage was slated for June 15.

It was expected that by August-end, the government will be able to determine the highest bidder.

On March 28, the central government had issued a Preliminary Information Memorandum (PIM) inviting “EoI” for the strategic divestment of AI, along with the airline’s shares in AIXL and AISATS (Air India SATS Airport Services) from private entities including the airline’s employees.

The central government owns 100 per cent equity of Air India. In turn, the airline holds full stake in Air India Express, while it holds 50 per cent stake in the joint venture AISATS.

Accordingly, it has been planned to divest 76 per cent government stake in AI, 100 per cent in AIXL and 50 per cent in AISATS.

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