Monday, January 27, 2020

Govt Makes Three Big Changes to Exit Air India Completely, But Why Sale Remains a Tough Bargain

There are obvious learnings the government has imbibed from the failed attempt at selling off Air India during its first tenure. The biggest change in the bid conditions, which were unveiled today, is that the government intends to exit the airline completely.

As the divestment process got restarted on Monday, it became clear that the government is seeking to sell 100 per cent equity share capital in the airline, along with Air India’s shareholding interest of 100 per cent in AI Express Limited and 50 per cent in Air India SATS Airport Services Private Limited.
In the previous attempt, the government had offered only 76 per cent equity in the two airline companies, a major roadblock for potential investors.

The second big learning from the cold response that had been seen in the last bidding process is that the total debt the bidder will have to bear has also been reduced significantly. The bid document says only a little over Rs 23,000 crore of debt will be left on the airlines books (which is less than half the debt of AI) and that liabilities outside of the debt would be an additional amount, backed by assets.

Thirdly, this round of disinvestment mandates 3 per cent of the airline equity for employee stock options. It also presents the status of airline employees in a better light compared to other airline peers. The document also says that nearly every third employee of the airline is set to retire in the next five years and that its expense on employees is in the same bracket as market leader IndiGo. But, yet again, there is no mention of any Voluntary Retirement Scheme or any other method by which employee strength can be reduced.
So at least in terms of exiting the airline completely and lessening the employee plus debt burden on the buyer, the government appears to have done well this time.

Some other bid conditions for prospective bidders also seem benign. For example, it wants the acquirer to ensure that AI and Air India Express Limited (AIXL) continue their business "on a going concern basis for a period of three years from the date of the closing of the Proposed Transaction on terms as may be specified in the definitive documents provided the foregoing shall not restrict route rationalization by AI and AIXL or any actions, steps or decisions taken for operational and financial efficiency of AI and AIXL.”
In simple terms, it means the bidder cannot shut down the airline or declare it bankrupt for at least three years. Also, the brand name "Air India" cannot be abandoned by the bidder.

So will the government succeed this time around in getting Air India off its hands?
Read the rest of Sindhu Bhattacharya's article (News18) for the answer >>
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