The Indian government’s plan to sell the troubled state-owned airline Air India is drawing interest from the Tata Group, according to various media reports.
The salt-to-software conglomerate has intensified the due diligence process and its officials have been visiting Air India sites lately. They include officials from Air Asia India, in which the Tata Group has a stake, Tata Consultancy Services and other group companies, Indo-Asian News Service reports.
Tata Group has roped in Bain and Company and Seabury Group to carry out due diligence on Air India and its subsidiary Air India Express. It has also hired experts from Delta and United Airlines to make a blueprint for post-merger integration of Air India with its existing airline businesses, Business Standard reports.
The Mumbai-headquartered conglomerate currently has stakes in two airlines – Vistara, a full-service airline, and AirAsia India, a budget carrier. Tata Group owns a 51.49% stake in Vistara, while Singapore Airlines holds the rest. Singapore Airlines had earlier abandoned the no-compete clause, allowing the Tata Group to go ahead with a solo bid for Air India.
As for Air Asia India, Tata Group had increased its holdings to 84% from 51% last year, because its partner AirAsia Berhad wants to scale back its India operations following Covid-19 pandemic losses.
Tata officials are closely examining the operations of the national carrier and visited its corporate office in Delhi and other sites across the country. They are studying its contractual obligations, cost structure and other aspects such as the type of software used and rostering schedules.
Air India has set up ‘divestment cells’ to facilitate coordination with Tata officials. It has also provided them access to their operational areas.
The submission of financial bids is due in September. The process of due diligence got delayed because of the outbreak of the second wave of Covid-19.
The crucial aspect for potential buyers is to evaluate Air India’s liabilities, obligations, and business relations with its subsidiaries. According to the provisional figures of 2019-20 (April-March), the total obligations of Air India were 383.66 billion rupees ($ 5.15 billion). This was after the transfer of debt amounting to 220.64 billion rupees to the special purpose vehicle called Air India Assets Holding.
The Indian government wants to divest its 100% stake in Air India and budget carrier AI Express, and sell its 50% share in Air India SATS Airport Services, a joint venture with Singapore-based ground handling firm SATS. Set up in 2010, Air India SATS Airport Services currently operates in five airports – Bangalore, New Delhi, Hyderabad, Mangalore, and Thiruvananthapuram.
In the past two years, the government has been sweetening the conditions for the potential suitors owing to lackluster responses. The government’s first attempt in 2018 had failed to get any bids. It had then sought buyers for a 76% stake in Air India and investors were reportedly not comfortable with the government retaining a 24% stake.
For the 2021-22 fiscal year, India has set a disinvestment target of 1.75 trillion rupees ($23.48 billion). Other than Air India, the other major state-owned enterprises it wants to reduce stake in or sell include Life Insurance Corporation, Bharat Petroleum, and Shipping Corp.