This is the second attempt by NDA Government at disinvestment and strategic sale of premiere public sector airline Air India (AI). Its first attempt in 2018 did not elicit any bid from prospective buyers. It appears from the information memorandum document released by the government that efforts have been made to sweeten the deal.
This time around, the government has put on block 100 per cent sale of equity of AI, up from the 76 per cent that was proposed in 2018. This will encourage the bidders, for there will be no governmental interference, whatsoever. In addition, the government will absorb 30 per cent more debt. AI’s latest annual losses have exceeded Rs 8,500 crore.
But what makes the deal really attractive is also the offer for sale of subsidiary of AI-the Air India Express, the low cost subsidiary with sizeable market share. Add to this a 50 per cent stake sale in AI SATS (the ground handling arm); the combined offer is indeed attractive. AI is a huge and complex entity. The sale, its terms can hardly be expected to be simple. So, what is stated in the information memorandum is as important as what is not stated in it.
Broadly, the buyer will have to take over US $3.3billion debt in exchange for three companies. The buyer has been given the assurance of debt being fully backed up by assets. AI has the highest revenue earnings among the domestic carriers. India is already the 3rd world’s largest civil aviation market in terms of domestic travel and is slated to occupy the same overall global position by 2024. AI along with its low cost subsidiary Air India Express have an 18 per cent share in international travel market. Obviously, it controls bulk of the bilateral rights, slots and code sharing arrangements.
A successful bid for buying out AI is essentially a claim on the future. Look at the future traffic potential, earnings and expected future cash flows and market dynamics-it is all promising. Air India Express is easily the pick from the lot, if one takes in to account valuation of six to seven times the earnings. This however, is not to suggest that there are no challenges. Among many, there are two major concerns. One, brand AI should continue even after the acquisition.
03/02/20 DM Deshpande/Navhind Times
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This time around, the government has put on block 100 per cent sale of equity of AI, up from the 76 per cent that was proposed in 2018. This will encourage the bidders, for there will be no governmental interference, whatsoever. In addition, the government will absorb 30 per cent more debt. AI’s latest annual losses have exceeded Rs 8,500 crore.
But what makes the deal really attractive is also the offer for sale of subsidiary of AI-the Air India Express, the low cost subsidiary with sizeable market share. Add to this a 50 per cent stake sale in AI SATS (the ground handling arm); the combined offer is indeed attractive. AI is a huge and complex entity. The sale, its terms can hardly be expected to be simple. So, what is stated in the information memorandum is as important as what is not stated in it.
Broadly, the buyer will have to take over US $3.3billion debt in exchange for three companies. The buyer has been given the assurance of debt being fully backed up by assets. AI has the highest revenue earnings among the domestic carriers. India is already the 3rd world’s largest civil aviation market in terms of domestic travel and is slated to occupy the same overall global position by 2024. AI along with its low cost subsidiary Air India Express have an 18 per cent share in international travel market. Obviously, it controls bulk of the bilateral rights, slots and code sharing arrangements.
A successful bid for buying out AI is essentially a claim on the future. Look at the future traffic potential, earnings and expected future cash flows and market dynamics-it is all promising. Air India Express is easily the pick from the lot, if one takes in to account valuation of six to seven times the earnings. This however, is not to suggest that there are no challenges. Among many, there are two major concerns. One, brand AI should continue even after the acquisition.
03/02/20 DM Deshpande/Navhind Times
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