Air India bidders may get flexibility on debt; why govt wants to sell all stakes in national carrier

In an effort to make the process of Air India privatisation attractive, the government is looking to give the investors flexibility to decide on the high debt of the airline. The flexibility will replace the current condition of the buyer taking over more than a third of the debt and transferring the rest to a special purpose vehicle, the Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey told PTI in an interview. The secretary added that the potential investors had requested that the debt should not be fixed at the Expression of Interest (EoI) stage.

Air India’s Expression of Interest floated by DIPAM in January showed a total debt of Rs 60,074 crore as of March 31, 2019, and the buyer was required to absorb Rs 23,286.5 crore, while the rest would be transferred to Air India Assets Holding Ltd (AIAHL), a special purpose vehicle. Tuhin Kanta Pandey further said that there is a lot of uncertainty in the aviation sector due to the pandemic and accordingly the transaction should be structured. Speaking about the feedback that everything should not be fixed at the EoI stage, he added that it can be decided by the market rather than the government upfront deciding it. The Air India Specific Alternative Mechanism (AISAM) would take a final call on whether bidding for Air India will take place based on equity value or enterprise value, he underlined.

The government wants to sell all its stake in the national carrier. “The government has decided to disinvest Air India due to its fragile finances and its continued and accumulated losses,” Hardeep Singh Puri, MoS (IC), Ministry of Civil Aviation had said in a reply to a question in Lok Sabha last month. Further financial support to revive the airline in a mature and competitive aviation market would not be the best use of scarce financial resources of the government, the minister had added. 

Meanwhile, Air India has been suffering continuous losses and the COVID pandemic along with its related impact on the aviation industry has further worsened the financial position of the company. During the lockdown period, Air India had skeletal operations of Charters or Vande Bharat flights. Consequently, in the first quarter of the current fiscal, the airline suffered a loss of nearly Rs 2570 crore.