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The deadline to submit bids for Air India has once again been extended, this time to December 14th. The extension comes as the government improves the terms of the sale, reducing the airline’s overall debt. So will the improved terms allow the sale to finally go through?
The main improvement in the terms has to do with the debt liability a potential owner would have to take on. The government has recently reduced the overall debt associated with the airline by excluding real estate and other non-essential assets from the deal.
The biggest change, however, has been with the valuation method of Air India itself. Bidders can make offers based on the enterprise value of the airline, instead of the previous equity and pre-fixed debt value. The addition of enterprise value gives bidders the chance to value Air India’s debt instead of the government’s fixed amount.
Bidders will also have to offer 15% of the value as cash to the airline, while the remaining 85% will remain as debt with Air India. This ratio can be changed to reduce the overall debt with Air India when it is purchased.
These changes allow a reduction in the total amount paid by a buyer and also ensures the buyers have a cash stake. Analysts have offered conflicting views of the government’s new approach, but the change does signal the government’s willingness to privatize the airline soon.
02/11/20 Pranjal Pande/Simple Flying
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