One of the major success stories of the government in the just concluded fiscal year 2017-18 was the disinvestment of Central Public Sector Enterprises (CPSE). At Rs 1,00,056.91 crore (including receipts through listing insurance firms), the Department of Investment and Public Asset Management (DIPAM) overshot the target of Rs 72,000 crore. Buoyed by this, the government has set itself a divestment target of Rs 80,000 crore in the current financial year beginning April 2018. The sale of state-run carrier Air India (AI) is one of the major bets the government is placing in its pursuit to meet this target.
However, the road to fruition for this deal is laden with thorns.
Two major potential bidders- Jet Airways and IndiGo voluntarily pulled out of contention in the last couple of weeks. IndiGo, which had officially expressed interest in the sale, was the first to jump the ship, saying that the low cost carrier (LCC) was "interest primarily in the acquisition of AI’s international operations and AI Express.
However, that option is not available under the government’s current divestiture plans for AI." The fact that the government has put up AI, AI Express and AI-SATS as one single entity for sale, is making the deal an unfeasible one for bidders. Even though Jet Airways did not explicitly divulge any reason for backing out, the official statement did mention "considering the terms of offer in the information memorandum and based on our review, we are not participating in the process." Last week, news agency Reuters quoted sources to report that the Tata Group too, is unlikely to bid as it finds the terms of the sale set by government, 'too onerous.'
With close to 2,800 international prime time slots per week in 39 destinations and more than 4,000 domestic slots in 54 destinations, Air India's fleet looks like a lucrative bouquet but over the years, the airline has amassed a debt in excess of Rs 50,000 crore, of which Rs 33,392 will have to be borne by the bid winner. Also, since its merger with Indian Airlines in 2007, AI has never made profits.
If this huge debt burden was not enough reason to make private players circumspect about the deal, the terms of sale carved out by the government as of now, is also proving to be a stumbling block. The conditions of sale mention that the government would retain 24 per cent stake and the winning bidder would be required to stay invested in the airline for at least three years. The winning bidder cannot merge the airline with existing businesses as long as the government holds a stake and the buyer will also be required to list Air India.
14/04/18 Times of India
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However, the road to fruition for this deal is laden with thorns.
Two major potential bidders- Jet Airways and IndiGo voluntarily pulled out of contention in the last couple of weeks. IndiGo, which had officially expressed interest in the sale, was the first to jump the ship, saying that the low cost carrier (LCC) was "interest primarily in the acquisition of AI’s international operations and AI Express.
However, that option is not available under the government’s current divestiture plans for AI." The fact that the government has put up AI, AI Express and AI-SATS as one single entity for sale, is making the deal an unfeasible one for bidders. Even though Jet Airways did not explicitly divulge any reason for backing out, the official statement did mention "considering the terms of offer in the information memorandum and based on our review, we are not participating in the process." Last week, news agency Reuters quoted sources to report that the Tata Group too, is unlikely to bid as it finds the terms of the sale set by government, 'too onerous.'
With close to 2,800 international prime time slots per week in 39 destinations and more than 4,000 domestic slots in 54 destinations, Air India's fleet looks like a lucrative bouquet but over the years, the airline has amassed a debt in excess of Rs 50,000 crore, of which Rs 33,392 will have to be borne by the bid winner. Also, since its merger with Indian Airlines in 2007, AI has never made profits.
If this huge debt burden was not enough reason to make private players circumspect about the deal, the terms of sale carved out by the government as of now, is also proving to be a stumbling block. The conditions of sale mention that the government would retain 24 per cent stake and the winning bidder would be required to stay invested in the airline for at least three years. The winning bidder cannot merge the airline with existing businesses as long as the government holds a stake and the buyer will also be required to list Air India.
14/04/18 Times of India
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