Developments on the ever-elongating saga of privatizing Air India may be on the horizon as the Air India Specific Alternative Mechanism (AISAM), comprising of a group of ministers within the government, are set to convene soon to finalize their plans to push off the airline to private investors. The plans are expected to consist of the government offering 100 percent of the airline for privatization.
The ploy is yet another attempt at privatization after a failed attempt last year when the government attempted to sell off only 76 percent of the airline. The deal had a significant number of strings attached such as maintaining the entire existing workforce and taking over $5 billion in debt.
It has been floated around that with this go at privatization, the Indian government is seeking to sell off 95 percent of the airline with a better set of terms revolving the outstanding debt and labor force. This, however, has been usurped by a new set of rumors.
Several insiders believe that the AISAM is going to go for a complete divestment of the airline by the government. This is likely an attempt to entice buyers and provide a cleaner transaction that completely divests any government control of the airline.
The Civil Aviation Ministry and Department of Investment and Public Asset Management believe that there will only be a buyer for the Air India if the government removes any shred of ownership of the airline.
Struggling Finances and Interest
Over the past year, the government had tried to improve the airline’s performance with the implementation of a revival plan for the airline. This involved significant financing and divestments of non-core assets such as major real estate holdings by the airline.
Subsequently, Air India’s fortunes have marginally improved. There is still a considerable amount of outstanding debt that needs to be dealt with and is a key reason buyer interest in the airline has been tepid.
In order to make the airline more appealing, the government has created a special purpose vehicle called Air India Assets Holdings Ltd to transfer a significant portion of the airline’s debt and try to clean up the balance sheet.
The special purpose vehicle is expected to raise funds in a bond issuance to help repay the airline’s outstanding debt. It is comprised primarily of accumulated working capital loans not backed any assets along with other subsidiaries that include non-core/non-operating assets and pieces of fine art.
Tata Sons, a large Indian conglomerate with majority holdings in Vistara and AirAsia India, is expected to decline to bid for Air India. It’s likely that the company doesn’t see Air India adding any value to its airline portfolio citing high labor costs and debt.
Air India’s primary value seems to be derived from the slots it holds at congested airports across India and the world and it may end up being seen as another Jet Airways, an airline worth more as pieces than as a whole.
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