Air India planes on the tarmac. Photo: AFP

The much-delayed sale of India’s state-run airline Air India may finally take off. The government has initiated the process for inviting financial bids and the deal is likely to conclude by September, Press Trust of India reports.

The Indian government is selling its entire 100% stake in Air India, which has been incurring losses following its merger with domestic operator Indian Airlines in 2007. The sale process got delayed due to the Covid-19 pandemic and the government had extended five times the deadline to submit preliminary bids for the national carrier.

After analyzing these bids, eligible bidders were provided access to the Virtual Data Room of Air India, and their queries answered. The government has now issued a request for proposal to the shortlisted bidders, asking them to submit financial bids.

Before the opening of bids, investors will have to undergo mandatory security clearance from the home ministry. The winning bidder will then have to obtain all the regulatory clearances and conclude the financial transaction. The entire process is expected to be completed by September.

Last month, Civil Aviation Minister Hardeep Singh Puri said the government will keep Air India running until it gets divested and there is no choice but to either “privatize or close” the debt-laden airline. He pointed out that the airline was incurring a loss of 200 million rupees a day.

The Narendra Modi government has been trying to sell off the loss-making airline for the last four years. In 2017, it offered to sell a 75% stake in the airline and its entire debt of over 600 billion rupees, but it failed to generate even a single bid.

The government has this time sweetened the deal by allowing bids on the basis of the airline’s enterprise value (market value of debt and equity). The buyer need not accept any pre-determined level of debt, but will be required to pay 15% of the enterprise value quoted by it in cash. The sale will also include Air India’s 100% stake in budget carrier Air India Express and 50% holding in the ground and cargo handling agency Air India SATS Airport Services.

Likely bidders

Salt-to-software conglomerate Tata Group was among the many entities that had put in preliminary bids in December last year. It also owns an 84% stake in the budget airline AirAsia India and runs a full-service airline, Vistara, in collaboration with Singapore Airlines.

SpiceJet promoter Ajay Singh and two other investors, including a foreign fund, have also shown an interest in Air India.

Earlier, a group of Air India employees had submitted a bid for the loss-making airline, and they had the backing of a Seychelles-based fund. However, Ernst & Young, which is advising the government on the sale, had said the group didn’t meet eligibility requirements.

The successful bidder will also get control of 4,400 domestic and 1,800 international landing and parking slots at domestic airports, as well as 900 slots at airports overseas.

Pandemic toll

India had banned both domestic and international flights in March last year to curb the spread of virus. This has severely impacted the Indian aviation sector in 2020 with major airlines facing record losses and forced to lay off employees. As the scheduled overseas flights remain suspended, it is taking a heavy toll on Air India. The airline used to generate around 60% of its revenue from international operations.

Civil aviation consultant CAPA had projected that the Indian aviation industry will lose a combined $6-6.5 billion in FY ’21, out of which airlines will account for $4-4.5 billion.