Govt expects bids for Air India to be lower due to COVID-19 as assets maybe devalued

The central government expects to privatize national carrier Air India at a much lower valuation than what it was hoping for pre-pandemic.

Senior government officials in the Civil Aviation Ministry and the Finance Ministry say that the virus is expected to keep dragging the revenues and profits of the airline and reduce the valuation of some of its prized assets like landing slots and travel routes.

Even then, the intent is to go ahead with the sale, as the decision makers in the government do not believe any more taxpayer money should be pumped into the ailing airline.

“We expect bids coming in for Air India to be lower than earlier expected, especially due to the second wave of the virus that has started in the country. Valuations of Air India’s fleet, landing slots, and international and domestic travel routes may also be slightly lower,” a government source told Moneycontrol.

The source added that due to restrictions in air travel currently imposed both domestically and on international routes, Air India’s landing slots and travel routes, the airline’s two biggest assets apart from its fleet, may fetch lower valuations.

“When the divestment plans for 2021-22 were being discussed before the pre-budget, it was discussed whether the planned privatization of Air India should be delayed by a year or so, to let the aviation industry recover,” said a second official.

However, it was decided to go ahead with the privatization since there was no appetite to further fund Air India and since there was no clarity on when the aviation market would actually recover.

“The question facing us was simple. If we put in ‘x’ amount of money into the airline over the next two years, will the sale price then be the current valuation plus ‘x’? The priority now is to sell at the best possible valuation in the current environment,” the official said.

The government was earlier expected to fetch around Rs 15,000 crore from the sale of Air India, it's subsidiary Air India Express and Air India Sats Airport Services Private Ltd, by selling its 100 percent equity in the airline.

07/04/21 Varuqhullah Khan/Moneycontrol

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Categories: Air India Apr 2021