After failing to attract even a single bid for a 76% stake in a 2018 privatization attempt, the Indian government appears ready to call for expressions of interest in an attempt to sell a 100% stake in debt-strapped Air India.
As is the case with the ongoing privatization attempt at Italian flag carrier Alitalia, unions have expressed displeasure in any privatization that would call for cuts to bloated payrolls; unions at both carriers have called for reorganization under government ownership to allay the threat of any massive layoffs. Government officials are sensitive to the reality that workers also are votes.
If a deal is reached, it is certainly unlikely to close before 2020
The Indian government aimed to raise about $1 billion from the aborted 2018 sale of a 76% stake in the carrier. The government cited high oil prices, a weaker Indian currency and rising interest rates at that time for the universal disinterest from potential buyers. In reality, some bidders may have been put off by the government’s proposed retention of a 24% stake in the carrier, allowing for potential interference by the government in a newly constructed Air India.
Even the sale of a 100% stake in Air India does not guarantee noninterference by the Indian government as the sale could become a political issue. Added to the equation is the probable problems any buyer would have in integrating a formerly state-owned entity into a private-sector airline operation. Labor concerns, including seniority issues, have plagued the successful mergers of some U.S. carriers.
The Indian flag carrier is shouldering about $8.5 billion of debt. To put Air India’s debt pile in perspective, the International Monetary Fund has pegge the 2019 gross domestic product (GDP) of Tajikistan at $8.2 billion and of Kyrgyzstan at $8 billion; the combined GDPs of Guyana and Liberia are less than Air India’s long-term debt.
The current attempt will mark the third time the government has tried to sell the carrier, as well as the second time for the current Modi administration. In the run-up to the 2018 non-event, the government was quick to trumpet huge interest from major airline players. Tipped by Indian media as potential suitors were Singapore Airlines in a joint bid with Indian conglomerate Tata Group, as the two already are partners in India-based full-service domestic carrier Vistara, and possibly flag carrier Qatar Airways.
The only recent good news for Air India is the grounding of Mumbai-based Jet Airways, which shifted some seats to Air India an allowed the carier to raise prices. Still, Jet Airways lenders have been unable so far to find a suitor for that carrier, which is only $1 billion in debt.
This time aound, the government has added several sweeteners to the deal that may make it more palatable to investors, including hiving off over $4 billionof the carrier’s debt into special purpose vehicle (SPV) Air India Assets (AIAHL). That SPV was set up for warehousing accumulated working capital loans not backed by any assets, along with four subsidiaries — Air India Transport Services, Airline Allied Services, Air India Engineering Services (AIESL) and Hotel Corporation of India (HCL) — and non-core assets, including real estate and art. AIAHL raised about $3 billion between September and October via issuance of three tranches of high-yield bonds, with proceeds earmarked to repay some of Air India’s debt.
Warehousing non-core operations into AIAHL will allow Air India to be sold off as an airline, with low-cost carrier Air India Express as part of the deal, rather than selling a package of core and non-core assets.
Air India operates a mixed fleet of Airbus short-haul and Boeing long-haul aircraft. Plans call for the carrier to increase the number of aircraft in service from the current 127 to about 250 by 2025. Air India’s cargo operations cover a network of 82 domestic and 41 international destinations.
