Monday, January 27, 2020

What an Air India buyer will get: Debt, old aircraft, little-used Star Alliance creds and lots of extra employees

In 2018, the government, for the first time, had made an unsuccessful bid to sell Air India to prospective buyers and had to eventually close the process without a sale. Reason? Too much debt, too little in terms of assets, and too much task in terms of control. The government wanted to retain a 24 percent stake in the national carrier, to be sold later after a turnaround was established for the airline. This time it’s different.

On Monday, the government released a 220-page preliminary information memorandum (PIM), kicking off the sale process of Air India for a second time around. Learning from the last time, many things have been changed. The prospective buyers are being offered 100 percent of Air India, along with Rs 23,286-crore debt. What comes along is the following:

1) Air India's 100 percent stake along with all its aircraft, slots, employees but keeping aside 4 Boeing 747 aircraft used for VIP operations

2) Air India Express' 100 percent which is the no-frills airline started by Air India to serve the Middle East and South East Asia routes

3) AISATS' 100 percent share, the airport ground operations and cargo handling joint venture with Singapore Airlines.

What is being kept aside is all the Air India artefacts, paintings, key buildings such as the Air India Building at Nariman Point in Mumbai and the headquarters building in central Delhi. Apart from that, the hotels owned by Air India under the Centaur brand, 100 percent stake in Air India Engineering Services Ltd (AIESL)—Air India’s 100 percent owned ground handling company and Alliance Air, which is the regional airline under Air India, will be carved out of the Air India Limited before the sale.

The attempt this time around, then, is to hand out as much of an airline operation with a robust international and domestic network to the prospective buyers, instead of a whole aviation company with their hands in the other parts of the business as well. What is confusing then, is why is the sale of the 50 percent stake in Air India SATS Airport Services Private Limited  (AISATS) being lumped with this sale process.

From the last time around, Air India has cut down the amount of debt to be taken over by the prospective buyers. The combined debt of Air India and Air India Express is Rs 60,074 crore. The last time around it was expected that Rs 33,392 crore would be taken over by Air India’s prospective buyers. This time, the amount to be taken over is less by a third. Accordingly, Rs 23,286 crore is the amount that Air India asks to be taken over.
Read Ajay Awtaney's full article here in First Post >>
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