Govt. announces sale of 100% stake in debt-laden Airline

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The government of India restarted the divestment process of Air India after relaxing bidding norms in terms of debt and eligibility. It announced the sale of 100 per cent stake in debt-laden Air India. The sale will be implemented through the open bidding route.

Issuing the preliminary bid document for the strategic disinvestment, the government has set March 17, 2020, as the deadline for submitting an expression of interest.

As part of the strategic disinvestment, Air India would also sell 100 per cent stake in low-cost airline Air India Express and 50 per cent shareholding in joint venture Air India SATS Airport Services Private Limited (AISATS).

Ernst & Young is the transaction advisors for the divestment process. Those interested in bidding for Air India must have a net worth of Rs3,500 crore. Management control of the airline would also be transferred to the successful bidder.

Briefing media in New Delhi, Civil Aviation Minister Hardeep Singh Puri has said that Air India along with Air India Express is a great asset and the successful bidder will continue to use Air India brand. Mr Puri said, the financial position of Air India is very fragile and the Government has limited resources. He said Air India is under a debt trap and the private sector can bring required capital to the Airline.

The government has earlier in 2018 struggled to privatise the loss-making Air India due to lack of interest from the bidders. One of the major reasons for its failure in the past was related to government unwillingness to fully exit from the airline, it was looking to sell only 76 per cent stakes of the company. But, the government has changed the clauses for sale of Air India and the changes are:

* Transfer of management control and sale of 100% shares of Air India along with Air India’s 100% stake in its subsidiary, Air India Express Limited and 50% stake in the joint venture, AISATS.

* Freezing of Debt in Air India at Rs23,286.5 crore which is approximately equivalent to the Written Down Value (WDV) of combined assets of Air India and Air India Express. The debt has been reduced to R23,286 crore from previous Rs60,074 crore.

* The liabilities to be retained in Air India will be equal to certain current and non-current assets. Considering the combined figures as on March 31, 2019, the liabilities retained would be Rs8,771.5 crore.

* The remaining debt and liabilities of Air India and Air India Express will be allocated to SPV (Air India Assets Holding Limited).

* The contingent liabilities related to statutory dues and Government dues will be indemnified by Government.

* The contingent liabilities due to retired employees will be clarified at the RFP stage.

* Corporate guarantees given by Air India on behalf of Alliance Air will not be passed to the new investor.

* Land and buildings at Delhi, Mumbai airports and Corporate Office which are core assets for running the airline will be given to new investor on right to use basis for a limited period.

* Government has committed to pay certain employees’ related dues before the closing of the transaction.

* The bidding structure on forming the Consortium has been eased as compared to the last round of bidding.

* The financial capability of prospective investors has also been made more attractive such as lowering of Net Worth criteria to Rs3,500 crore, and Net Worth qualification of investor based on strength of its Affiliate. The net worth for eligible bidders has been relaxed to Rs3,500 crore from Rs5,000 crore.

* Individual member must have at least 10% share in the consortium i.e. a net worth or ACI of Rs.350 crore. The scheduled Indian commercial operator(s), however, with zero or negative net worth are eligible to be a member of the consortium provided they have a shareholding of <=51%.

* Air India with a new investor will continue using the ‘Air India’ brand.

Employees related issues

* The total employee strength of the two companies is 17,984, out of which 9617 are permanent employees. Approx 36% of the permanent employee will be retiring in the next 5 years.

* AISATS has 11,958 contractual employees and 399 employees are deployed from Air India and another subsidiary.

* Employees’ dues of about Rs1,383.70 crore on account of Justice Dharmadhikari Commission’s recommendation on past arrears will be paid by the Air India Assets Holding Limited (AIAHL) – the SPV before the closing of the proposed transaction.

* Provision for Rs207.63 crore towards wage arrears accruable to employees working on Narrow Body fleet has been made in the books of account of Air India. The treatment of this liability may be provided at the RFP stage.

* 3% of equity shares of Air India to be offered to the permanent employees of Air India as ESOP.

Air India & Air India Express

* The two companies have 146 aircraft in its fleet together or which 82 are owned by it.

* They have worldwide bilateral rights and spread over domestic as well as international slots

* They together during 2018-19 have carried around 26.3 million passengers.

* The average age of the aircraft owned by the two companies stands at 8, which is among the youngest fleet.

* 27 Boeing-787 with Air India are as young as 5 years and 27 Airbus-320 Neo (CFM engines) are as young as 2 years.

* Air India and Air India Express have almost 51% share of the international traffic to/from India among Indian carriers and 18 % share including global carriers (ex-India).

* Air India has coverage of 98 destinations with 56 domestic and 42 international destinations.

* Air India and Air India Express have combined revenue of Rs.30,632 crore in 2018-19, which is the highest among Indian carriers.

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