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

The Indian government is renewing its efforts to sell off its loss-making airline Air India and may extend the deadline for expression of interest to December 15. The current deadline is October 30, and this will be the fifth extension after the Narendra Modi government made its second attempt to sell the airline earlier this year.

It is also sweetening the conditions for the potential suitors as many of its aircraft and assets have been lying idle because of Covid-19 flight restrictions. The bidders will be allowed to put in offers on an enterprise value basis, Press Trust of India reports, quoting sources.

Enterprise value is a popular valuation methodology for takeover deals and it is often used as an alternative to equity market capitalization. It is a measure of a company’s total value, which includes market capitalization, short- and long-term debt and cash on the company’s balance sheet.

The changes were made as valuation based on Air India’s flight operating capacity would not be possible at present due to curbs in the number of flights. The potential bidders will be provided time to clear their queries on these changes. The government had appointed Ernst & Young India as transaction adviser.

The bidders will be asked to place offers for the entire company, 85% of which would be considered to go towards debt repayment and the balance would accrue to the government. During due diligence, the bidders will be provided with a “merit list” of Air India debts. They can then decide which debt to repay.

The core group on disinvestment, headed by the cabinet secretary, has approved the new proposal and it will be placed before the Air India Specific Alternative Mechanism, headed by Home Minister Amit Shah, the news agency added.

The Modi government is keen to sell the airline to meet its ambitious disinvestment target of 2.1 trillion rupees ($28 billion) for the current fiscal. Its first attempt in March 2018 to sell a stake in the carrier failed as investors were uncomfortable with the government retaining a 24% stake in the airline as well as the requirement to stay invested for at least three years. Also, the acquirer was required to absorb a debt of 490 billion rupees ($6.68 billion).

In January this year, the government sought bids for divesting its entire 100% equity in the airline, including Air India’s 100% stake in the budget airline Air India Express Ltd and a 50% stake in Air India SATS Airport Services.

It also substantially reduced the debt burden needed to be borne by the successful bidder out of the total debt of 600 billion rupees ($8.18 billion). The buyer was required to absorb 232 billion rupees ($3.16 billion), while the rest was to be transferred to Air India Assets Holding Ltd, a special purpose vehicle.

However, the government has been extending the deadline for submitting bids due to the unexpected unfolding of the coronavirus pandemic and the stress faced by the aviation sector across the world.

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world's first benchmark cross sector Chinese Bond Indices. Read ATF now.