Tuesday, July 04, 2017

What Air India’s seller and any future buyer should do to make the deal fly

At last, the government has decided to bite the bullet and sell Air India (AI). Now, the question is how: strategic sale, or sale through the stock market? Ratan Tata, possibly in alliance with Singapore Airlines, has shown interest, as have others like IndiGo and Qatar Airlines.

Strategic sale is a political landmine, which could invite charges of favouritism — or, worse, corruption. ‘Strategic investors’ will always pick up the stakes in the secondary market. But that is not the government’s worry. The only downside of a market sale is that the Indian stock market may not be large enough to absorb this big a sale and fetch a good price.

So, should AI’s assets be stripped and each component sold? Or to sell it as a going concern? Or to sell the profit-making subsidiaries — AI Express (low-cost carrier), AI Transport (cargo) and AI SATS (airport services) — land and office buildings separately, and the remaining as a ‘going concern’?

The difference between the first and third options is that in the first, landing slots can also be auctioned independently. In the third option, it will be integral with the remaining portion of the airline. A detailed cost-benefit analysis has to be done to decide which is the best alternative.
04/06/17 Economic Times