Many of Air India's aircraft have been sitting idle because of Covid-19 flight restrictions. Photo: AFP

The Indian government has unveiled its plan to sell the state-owned carrier Air India and published the document inviting expression of interest. Unlike its previous attempt in 2018 the government wants to sell the entire stake in the airline.

The document released on Monday has set March 17 as the deadline for submission of initial expression of interest and the result is expected to be known by March 31. Ernst & Young is the transaction adviser.

As part of the strategic disinvestment, Air India would also sell its 100% stake in low-cost airline Air India Express and a 50% shareholding in the ground-handling joint venture Air India SATS, in which Singapore Airlines is a partner. The management control of the airline would also be transferred to the successful bidder.

The government said that substantial ownership and effective control of Air India would have to remain vested with an Indian entity following the sale, limiting the scope of any foreign bidders interested in the asset. The new buyer would continue to use the Air India brand. The bid document states that the FDI policy for the sale remains unchanged and foreign carriers will not be able to own more than a 49% stake in Air India.

The national carrier has a debt of nearly 583 billion rupees ($8.16 billion) as of March 31, 2019, but the terms have been sweetened for potential buyers. According to the document a debt of 233 billion rupees ($3.26 billion) would remain with Air India and Air India Express at the time of closing of the disinvestment. The remaining debt would be allocated to Air India Assets Holding Ltd, which will not be a part of the proposed transaction.

Civil Aviation Minister Hardeep Puri has assured that the interests of the employees will be taken care of. He said funds due to employees will be cleared by Air India Assets Holding before the closure of the sale transaction. The total is pegged to be around 138 billion rupees.

In addition, the buyer of the airline shall ensure that 3% of equity shares of Air India are offered to its permanent employees as stock options. The airline has over 14,000 employees and a fleet of 125 aircraft. It has a domestic market share of 11.9% as on December, 2019.

Air India Chairman cum-Managing Director Ashwani Lohani said all employees will go to the new buyer and there will be no excess staff. The employees’ union had expressed concern over medical insurance and the government is working to provide them some form of medical benefit once they retire, he added. Nearly a dozen Air India employee unions are expected to meet in New Delhi to discuss the government’s plan to sell the airline.

As for buyer interest, the names of Tata Group, Hindujas, IndiGo, SpiceJet and a few private equity firms are mentioned. Some of the foreign airlines could tie up with local players to place joint bids.

Industry experts foresee significant investor interest in Air India given its wide domestic and international network, traffic rights, slots at key foreign airports such as London and Dubai, technical manpower and large fleet. But some analysts feel that the size of the airline may deter buyers and argue that selling it in parts would appeal more to investors.

This is the Narendra Modi government’s second attempt to sell the loss-making airline. In 2018 it offered to sell a 76% stake in the airline, but not a single bidder turned up. Air India is currently bleeding heavily with the average daily loss pegged at 250 million rupees and the government is not keen to give further financial support.

But the grounding of the airline would remove a significant number of aircraft from the market. This would cause another round of turmoil in the country’s aviation sector such as what happened soon after Jet Airways wound up its operations early last year. Employees, creditors and a string of other stakeholders would be left at the mercy of the long-drawn-out bankruptcy process.

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